Ottawa’s EV mandate may destroy Canadian auto industry

No one had to force the public to abandon land lines for cellphones, or vinyl records for CDs and then online streaming. When superior products appear, people will switch voluntarily. An EV mandate may be affordable by 2035—but only if the product quality and user costs have progressed to the point that people want to switch anyway, in which case the mandate is not needed.

According to energy transition and “net zero” enthusiasts, the future looks bright for electric vehicles (EVs). So bright that the federal government and some provincial governments have had to offer some $15 billion in subsidies to prompt carmakers to develop Canadian production facilities while also offering lavish subsidies to get people to buy EVs. And since even that isn’t enough, according to a Trudeau government mandate, all new light-duty vehicles sold in Canada must be electric or plug-in hybrid by 2035. In other words, the government wants to ban traditional internal combustion engine vehicles (ICEVs).

The fundamental problem is that EVs cost more to make and operate than most consumers are willing to pay. In a 2016 submission to the Quebec government, which was then considering an EV mandate of its own, the Canadian Vehicle Manufacturing Association warned that its members were then losing between $12,000 and $20,000 per EV sold. Since then, the situation has gotten worse, with Ford reporting first quarter 2024 losses of US$132,000 per EV.

What will be the economic consequences of a national EV mandate in Canada? In a new paper forthcoming in the peer-reviewed Canadian Journal of Economics, I develop and run a detailed inter-provincial model of the Canadian economy including the auto sector. I argue that during the phase-in period the auto sector will raise the price of ICEVs and earn above-market rents on them, but that won’t cover the losses on the EV side and the industry will go into overall losses by the late-2020s. The losses will be permanent unless and until EV production costs fall enough that a mandate is unnecessary. In short, the 2035 mandate is affordable only if it’s not needed. If it takes a mandate to force consumers to choose EVs over ICEVs, the mandate will destroy the Canadian auto industry.

The mandate sets up a race between regulation and technology. Some aspects of EV production are falling, such as batteries. Others, such as specialty metals used in motors, are sole-sourced from China and are not getting cheaper. Other user costs are rising including electricity, for which we can thank two decades of green energy madness. Taking all aspects together, suppose EV technology improves so quickly that by 2035 consumers are absolutely indifferent between an EV and an ICEV, so the mandate is costless thereafter. Getting to that point would still impose Canadian auto industry losses that total $140 billion compared to the no-policy base case. As of 2031 the losses in real GDP and industrial output compared to the base case would average more than $1,000 per worker across Canada. Greenhouse gas emissions would fall by just under 3 per cent relative to the base case as of 2035, but the abatement costs reach about $2,800 per tonne as of 2030.

That’s the best-case scenario. What if full EV cost parity takes until 2050? According to the model, the auto sector will lose $1.3 trillion relative to the base case between 2025 and 2050. Of course, in reality the sector would simply shut down, but in the model a sector must keep operating even at a loss. In absolute terms the national economy would continue to grow but much more slowly. Economic losses relative to the base case as of 2035 include a 4.8 per cent reduction in real GDP nationally (8.9 per cent in Ontario), a 2.6 per cent cut in real earnings per worker, 137,000 jobs lost, a 10.5 per cent drop in auto demand nationally and a 16.8 per cent drop in capital earnings relative to average. Greenhouse gas emissions would fall by just under 6 per cent against the base case as of 2035 but at a cost of more than $3,400 per tonne, 20 times the nominal carbon tax rate.

These are unprecedented costs, but then again we have never before proposed to ban the production and purchase of one of the most popular consumer products of all time. A large part of our economy is organized around making and using gasoline-powered cars, so if the government plans to outlaw them we should not be surprised that doing so will have harsh and far-reaching economic consequences. While production of EVs will partially offset the losses, it’s a classic error in economic reasoning to suppose the policy package as a whole could yield a net gain or offer a genuine economic opportunity. If it could, think of all the economic growth we could contrive simply by banning things. We could ban computers and make people read books instead—think of the boom in publishing. We could ban all forms of transportation and make people walk. Think of how much money they’d save, and the opportunities this would open up for shoemakers.

I better stop there before I put ideas in politicians’ heads. To be clear, people are willing to pay for computers, cars and lots of other things because they perceive that they get greater consumption value than the cost of buying the item. So far that has not proven to be true of EVs, so an EV mandate by definition must make people worse off. No one had to force the public to abandon land lines for cellphones, or vinyl records for CDs and then online streaming. When superior products appear, people will switch voluntarily. An EV mandate may be affordable by 2035—but only if the product quality and user costs have progressed to the point that people want to switch anyway, in which case the mandate is not needed.

Will an EV mandate destroy the Canadian auto industry and impose serious harm on the Canadian economy? There’s a simple way to tell: if the government perceives, based on trends in vehicle sales data, that a mandate is necessary to force consumers to switch, the answer is yes.

Author:

Ross McKitrick

Professor of Economics, University of Guelph

Related Topics:#CanadianAutoIndustry #FraserInstitute #Ottawa'sEVMandate #RossMcKitrick

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Automotive

Biden-Harris Admin’s EV Coercion Campaign Hasn’t Really Gone All That Well

Published on October 31, 2024

Todayville

From the Daily Caller News Foundation

By David Blackmon

The future direction of federal energy policy related to the transportation sector is a key question that will be determined in one way or another by the outcome of the presidential election. What remains unclear is the extent of change that a Trump presidency would bring.

Given that Tesla founder and CEO Elon Musk is a major supporter of former President Donald Trump, it seems unlikely a Trump White House would move to try to end the EV subsidies and tax breaks included in the Inflation Reduction Act (IRA). Those provisions, of course, constitute the “carrot” end of the Biden-Harris carrot-and-stick suite of policies designed to promote the expansion of EVs in the U.S. market.

The “stick” side of that approach comes in the form of stricter tailpipe emissions rules and higher fleet auto-mileage requirements imposed on domestic carmakers. While a Harris administration would likely seek to impose even more federal pressure through such command-and-control regulatory measures, a Trump administration would likely be more inclined to ease them.

But doing that is difficult and time-consuming and much would depend on the political will of those Trump appoints to lead the relevant agencies and departments.

Those and other coercive EV-related policies imposed during the Biden-Harris years have been designed to move the U.S. auto industry directionally to meet the administration’s stated goal of having EVs make up a third of the U.S. light duty fleet by 2030. The suite of policies does not constitute a hard mandate per se but is designed to produce a similar pre-conceived outcome.

It is the sort of heavy-handed federal effort to control markets that Trump has spoken out against throughout his first term in office and his pursuit of a second term.

A new report released this week by big energy data and analytics firm Enverus seems likely to influence prospective Trump officials to take a more favorable view of the potential for EVs to grow as a part of the domestic transportation fleet. Perhaps the most surprising bit of news in the study, conducted by Enverus subsidiary Enverus Intelligence Research (EIR), is a projection that EVs are poised to be lower-priced than their equivalent gas-powered models as soon as next year, due to falling battery costs.

“Battery costs have fallen rapidly, with 2024 cell costs dipping below $100/kWh. We predict from [2025] forward EVs will be more affordable than their traditional, internal combustible engine counterparts,” Carson Kearl, analyst at EIR, says in the release. Kearl further says that EIR expects the number of EVs on the road in the US to “exceed 40 million (20%) by 2035 and 80 million (40%) by 2040.”

The falling battery costs have been driven by a collapse in lithium prices. Somewhat ironically, that price collapse has in turn been driven by the failure of EV expansion to meet the unrealistic goal-setting mainly by western governments, including the United States. Those same cause-and-effect dynamics would most likely mean that prices for lithium, batteries and EVs would rise again if the rapid market penetration projected by EIR were to come to fruition.

In the U.S. market, the one and only certainty of all of this is that something is going to have to change, and soon. On Monday, Ford Motor Company reported it lost another $1.2 billion in its Ford Model e EV division in the 3^rd quarter, bringing its accumulated loss for the first 9 months of 2024 to $3.7 billion.

Energy analyst and writer Robert Bryce points out in his Substack newsletter that that Model e loss is equivalent to the $3.7 billion profit Ford has reported this year in its Ford Blue division, which makes the company’s light duty internal combustion cars and trucks.

While Tesla is doing fine, with recovering profits and a rising stock price amid the successful launch of its CyberTruck and other new products, other pure-play EV makers in the United States are struggling to survive. Ford’s integrated peers GM and Stellantis have also struggled with the transition to more EV model-heavy fleets.

None of this is sustainable, and a recalibration of policy is in order. Next Tuesday’s election will determine which path the redirection of policy takes.

David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.

Automotive

Trudeau’s new vehicle ban is a non starter

Published on October 11, 2024

Todayville

From the Canadian Taxpayers Federation

Author: Kris Sims

The Trudeau government’s ban on new gas and diesel vehicles is a nonstarter for three powerful reasons.

First, Canadians want to drive gas-powered minivans and diesel pickups.

Second, Canada does not have the electrical power to fuel these battery-powered cars.

Third, Canadians do not have the money to build the power-generating stations that would be needed to power these government-mandated vehicles.

Let’s start on the showroom floor.

The Trudeau government is banning the sale of new gasoline and diesel-powered vehicles by 2035.

In about 10 years’ time, Canadians will not be allowed to buy a new vehicle powered by an internal combustion engine because the government will forbid it.

Canadians disagree with this.

The Canadian Taxpayers Federation released Leger polling showing 59 per cent of Canadians oppose the federal government’s ban on new gas and diesel vehicles.

Among those who are decided on the issue, 67 per cent of Canadians, and majorities in every demographic, oppose the Trudeau government’s ban.

Now let’s look under the hood.

Canada does not have the electricity to charge these battery-powered cars. The government hasn’t presented any plan to pay for the power plants, transmission lines and charging stations for these government-mandated vehicles.

That leaves a big question: How much will this cost taxpayers?

Canada’s vehicle transition could cost up to $300 billion by 2040 to expand the electrical grid, according to a report for Natural Resources Canada.

Let’s look at why this will cost so much.

The average Canadian household uses about 10,861 kWh in electricity per year. The average electric car uses about 4,500 kWh of energy per year.

The average household’s electricity use would jump by about 40 per cent if they bought one EV and charged it at home.

Canada is home to 24 million cars and light trucks that run on gasoline and diesel, according to Statistics Canada.

If all those vehicles were powered by electricity and batteries, that fleet would use about 108 million mWh of power every year.

For context, one large CANDU nuclear reactor at the Darlington nuclear plant in Ontario generates about 7,750,000 mWh of power per year.

Canada would require about 14 of these reactors to power all of those electric cars.

Building a large nuclear reactor costs about $12.5 billion.

That’s a price tag of about $175 billion just for all the power plants. The Natural Resources report estimates the transition to electric vehicles could cost up to $300 billion in total, when new charging stations and power lines are included.

Who would be paying that tab? Normal Canadians through higher taxes and power bills.

Canadians cannot afford the cost of these mandatory electric vehicles because they’re broke.

Canadians are broke largely because of high taxes and high inflation, both driven by the Trudeau government’s wasteful spending.

About half of Canadians say they are within $200 of not being able to make the minimum payments on their bills each month. That’s also known as barely scraping by.

Food banks are facing record demand, with a sharp increase in working families needing help. That means parents who are holding down jobs are still depending on donated jars of peanut butter to feed their kids.

Rubbing salt into the wound, the federal government also put taxpayers on the hook for about $30 billion to multinational corporations like Honda, Volkswagen, Stellantis and Northvolt to build EV battery factories.

The roadside sobriety test is complete, and the Trudeau government is blowing a fail on this policy.

Canadians are opposed to the Trudeau government banning the sale of new gasoline and diesel-powered vehicles.

Canada does not have the electricity to charge these battery-powered cars.

Canadians don’t have the money to build the new power plants, transmission lines and charging stations these vehicles would demand.

It’s time to tow this ban on new gas and diesel vehicles to the scrapyard.

Franco Terrazzano is the Federal Director and Kris Sims is the Alberta Director of the Canadian Taxpayers Federation