Connect with us

Automotive

Ottawa’s EV mandate may destroy Canadian auto industry

Published

8 minute read

From the Fraser Institute

By Ross McKitrick

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.

Todayville is a digital media and technology company. We profile unique stories and events in our community. Register and promote your community event for free.

Follow Author

Automotive

Bad ideology makes Canada’s EV investment a bad idea

Published on

Dan McTeague

Written By

It doesn’t bode well for our country that our economic security rests on tariff exceptions to be negotiated by Liberal politicians who have spent the majority of Trump’s public life calling him a “threat to liberal democracy” and his supporters racists and fascists. Their hostility doesn’t lend itself to fruitful diplomacy. In any event, Trump’s EV rollback and aggressive tariffs will spell disaster for the Canadian EV sector.

What does Donald Trump’s resounding win in the recent U.S. election mean for Canada? Unfortunately, there doesn’t seem to have been much thought about the answer to this question in Ottawa, because the vast majority of our political and pundit class expected his opponent to be victorious. Suddenly they’re all having to process this unwelcome intrusion of reality into their narrow mental picture.

Well, what does it mean?

It is early days, and it will take some time to sift through the various policy commitments of the incoming Trump Administration to unpack the Canadian angle. But one thing we do know is that a Trump presidency will be no friend to the electric vehicle industry.

A Harris administration would have been. But, Trump spent much of his campaign slamming EV subsidies and mandates, pledging at the Republican National Convention in July that he will “end the electric vehicle mandate on day one.”

This line was so effective, especially in must-win Michigan, with its hundreds of thousands of autoworkers, that Kamala Harris was forced to assure everyone who listened that the U.S. has no EV mandate, and that she has no intention of introducing one.

Of course, this wasn’t strictly true.

First, the Biden Administration, of which Harris was a part, issued an Executive Order with the explicit goal of a “50% Electric Vehicle Sales Share” by 2030. The Biden-Harris Administration (to use their own formulation) instructed their Environmental Protection Agency (EPA) to introduce increasingly stringent tailpipe emission regulations on cars and light trucks with an eye towards pushing automakers to manufacture and sell more electric and hybrid vehicles.

Their EPA also issued a waiver which allows California to enact auto emissions regulations that are tougher than the federal government’s, which functions as a kind of back-door EV mandate nationally. After all, auto companies aren’t going to manufacture one set of vehicles for California, the most populous state, and another for the rest of the country.

And as for intentions, though the Harris camp consistently held that her prior policy positions shouldn’t be held against her, it’s hard to forget that as senator she’d co-sponsored the Zero-Emission Vehicles Act, which would have mandated that all new vehicles sold in the U.S. be “zero emission” by 2040. During her failed 2020 presidential campaign, Harris accelerated that proposed timeline, saying that the auto market should be all-electric by 2035.

In other words, she seemed pretty fond of the EV policies which Justin Trudeau and Steven Guilbeault have foisted upon Canada.

For Trump, all of these policies can be filed under “green new scam” climate policies, which stifle American resource development and endanger national prosperity. Now that he’s retaken the White House, it is expected that he will issue his own executive orders to the EPA, rescinding Biden’s tailpipe instructions and scrapping their waiver for California. And though he will be hindered somewhat by Congress, he’s likely to do everything in his power to roll back the EV subsidies contained in the (terribly named) Inflation Reduction Act and lobby for changes limiting which EVs qualify for tax credits, and how much.

All of this will be devastating for the EV industry, which is utterly reliant on the carrots and sticks of subsidies and mandates. And it’s particularly bad news for the Trudeau government (and Doug Ford’s government in Ontario), which have gone all-in on EVs, investing billions of taxpayer dollars to convince automakers to build their EVs and batteries here.

Remember that “vehicles are the second largest Canadian export by value, at $51 billion in 2023 of which 93% was exported to the U.S.,” according to the Canadian Vehicle Manufacturers Association, and “Auto is Ontario’s top export at 28.9% of all exports (2023).”

Canada’s EV subsidies were pitched as an “investment” in an evolving auto market, but that assumes that those pre-existing lines of trade will remain essentially unchanged. If American EV demand collapses, or significantly contracts without mandates or tax incentives, we’ll be up the river without a paddle.

And that will be true, even if the U.S. EV market proves more resilient than I expect it to. That is because of Trump’s commitment to “Making America Great Again” by boosting American manufacturing and the jobs it provides. He campaigned on a blanket tariff of 10 percent on all foreign imports, with no exceptions mentioned. This would have a massive impact on Canada, since the U.S. is our largest trading partner.

Though Justin Trudeau and Chrystia Freeland have been saying to everyone who will listen how excited they are to work with the Trump Administration again, and “Canada will be fine,” it doesn’t bode well for our country that our economic security rests on tariff exceptions to be negotiated by Liberal politicians who have spent the majority of Trump’s public life calling him a “threat to liberal democracy” and his supporters racists and fascists. Their hostility doesn’t lend itself to fruitful diplomacy.

In any event, Trump’s EV rollback and aggressive tariffs will spell disaster for the Canadian EV sector.

The optimism that existed under the Biden administration that Canada could significantly increase its export capacity to the USA is going down the drain. The hope that “Canada could reestablish its export sector as a key driver of growth by positioning itself as a leader in electric vehicle and battery manufacturing, along with other areas in cleantech,” in the words of an RBC report, is swiftly fading. It seems more likely now that Canada will be left holding the bag on a dying industry in which we’re invested heavily.

The Trudeau Liberals’ aggressive push, driven by ideology and not market forces, to force Electric Vehicles on everyone is already backfiring on the Canadian taxpayer. Pierre Poilievre must take note — EV mandates and subsidies are bad for our country, and as Trump has demonstrated, they’re not a winning policy. He should act accordingly.

Continue Reading

Automotive

Major Automaker Exec Flatly Says Liberals’ EV ‘Mandates’ Are ‘Impossible’ To Meet

Published on

From the Daily Caller News Foundation 

By Ireland Owens

Toyota’s North American Chief Operating Officer (COO) Jack Hollis criticized U.S. policies promoting electric vehicle adoption (EV) on Friday, according to Bloomberg.

The Toyota COO said that electric vehicle policies are “de facto mandates” that are not in sync with consumer demand, according to Bloomberg. Hollis also said that EV mandates such as those in California are impossible to meet, according to CNBC.

“The whole EV ecosystem is ahead of the consumer,” Hollis told reporters Friday, “It’s not in alignment with consumers. It’s just not.”

The Biden-Harris administration has introduced various EV-related policies as part of President Joe Biden’s climate agenda, including introducing a tailpipe emissions rule in March that would require about 67% of all light-duty vehicles sold after 2032 to be EVs or hybrids. Biden has been leading a push to build half a million public EV chargers nationwide by 2030, that has so far been met with various slowdowns.

Various American automakers have backpedaled on EV goals despite the current administration funneling billions of dollars in subsidies as part of its EV agenda. The California Air Resources Board’s “Advanced Clean Cars II” regulations require that 35% of 2026 model-year vehicles be zero-emission.

“I have not seen a forecast by anyone … government or private, anywhere that has told us that that number is achievable. At this point, it looks impossible,” Hollis said of the zero-emission regulations. “Demand isn’t there. It’s going to limit a customer’s choice of the vehicles they want.”

Many automakers have experienced issues with EV sales, including used EV models experiencing drastic price cuts due to slackening consumer demand. Ford Motor Company announced in October that it lost an additional $1.2 billion on EVs in the third quarter and announced in September that it would offer free EV chargers and home installations to incentivize customers.

Toyota did not immediately respond to a request for comment from the Daily Caller News Foundation.

(Featured Image Media Credit: Flickr/Ivan Radic)
Continue Reading

Trending

X