There’s not much urgency about tackling climate change and driving the switch to electric vehicles in Canada’s new federal budget. There are some incentives and voluntary targets for EVs but, on balance, the budget is an example of the mediocre policies holding North America back from catalysing the migration to electric vehicles (EVs). We now have proof from around the world that strong policies are what drives change.

China has disruptive legislation accompanied by a plethora of complementary measures. Canadian/North American initiatives are mild while the European Union is somewhere in between. The results are that China already offers a wide selection of EVs and sales are already booming, the European migration to EVs is imminent while North American governments and automakers are lagging behind, with modest exceptions in some progressive U.S. states and Québec and B.C..

These differences are important because the transportation sector accounts for approximately 60 per cent of oil consumption. Three studies confirm that even a moderate penetration of EVs will have devasting impacts on the petroleum sector. Even Shell believes peak oil is imminent and is engaged in major strides to migrate to clean tech and become the world’s largest power company.

The North American lack of urgency makes it harder for us to stop runaway climate change and even threatens the future of the North American auto industry.

China's leap forward

China, the world’s largest vehicle market, has imposed a complex system of credits and quotas for EVs — which it calls New Energy Vehicles (NEVs). These quotas began this year at 10 per cent and become incrementally stricter, set at 12 per cent in 2020 and 20 per cent in 2025. Under this complex formula, automakers earn extra credits for zero-emission battery-electric and fuel cell vehicles, and higher credits are allotted for greater zero emission autonomy.

Automakers that don’t achieve these targets will have to buy credits from manufacturers that have surpassed their quota. If there are no credits available on the market, a non-compliant company would have to pay a fine to the government. If a company misses its target badly enough, the government can order it to cease production of certain models.

All this means combustion vehicles will become more expensive to produce while electric vehicles become relatively cheaper.

On the demand side, EV rebates for consumers have been extended to at least 2020. The Chinese government offers bigger subsidies for NEVs with greater range, although under one per cent of car trips in China are longer than 120 km, (thanks in part to the government’s massive expansion of the country’s high-speed rail network). These incentives could see further tweaks before being phased out as electric vehicles become cost competitive with internal combustion engines.

Meanwhile, several Chinese cities offer their own generous subsidies for electric vehicles, but the national government is encouraging these subsidies to be phased out too. Some cities have adopted constraints for combustion vehicles. Beijing in 2015 invoked restrictions on new vehicle registrations to favour electric vehicles and plug-in hybrids and made EVs exempt from rules that limit driving at peak times. Shanghai has also imposed controls on internal combustion engine registrations. The high density of Chinese cities also tends to make private car ownership less appealing.

Incredibly, global and Chinese automakers are able to comply. There are over 400 electric vehicle technology manufacturers in the country, already offering broad selections of electric models. Even so, demand still outstrips supply.

For example, Chinese automaker Nio introduced its first electric SUV in June 2018, the seven-passenger ES8, and had a waiting list of 17,000 before production even began. This year, BYD had a waiting list of 40,000 for its electric Yuan model, even though the company was already producing 10,000 units per month.

BYD also built 14,000 buses for Shenzen’s all-electric bus fleet and as of 2017, China was home to 99 per cent of the world’s 385,000 electric buses. And every 5 weeks, China adds 9,500 e-buses to its roads.

With China being the largest vehicle market in the world — with 28.9 million units sold in 2017 compared to 17.2 million in the U.S. — global automakers cannot afford to ignore Chinese legislation on EVs. China represents 40 per cent of Volkswagen and 50 per cent of BMW global sales. GM sells more vehicles in China than in the U.S.

While EVs represented only six per cent of vehicles on Chinese roads in 2018, that figure more than doubled from the year before and is expected to more than double again this year with 2 million in plug-in sales. China’s State Council aims to see annual production sales of 2.5 million new EVs per year by 2020. Based on this growth rate, EVs could surpass the 20 per cent goal set by state planners for 2025, one estimate as high as 50 per cent.

China is also meeting demand for charging stations, often a major impediment to EV sales. Already, 75 per cent of the world’s installed charging stations are in China, with as many as 4.8 million more expected by 2020 and a goal of one station for every EV on the road. More than 5,900 new stations went online in September 2018 alone.

Rather than playing catch-up with global automakers on leading-edge internal combustion engines, China aimed for global leadership on electric vehicles in the 1990s and early 2000s with policy initiatives supporting EV research. This places China’s automakers, including those in joint ventures with non-Chinese firms, in a position to enter foreign markets, something they have not managed for gasoline-powered vehicles.

The European Union's imminent transition

In the European Union, new, tougher emission standards became effective in September 2018. Starting in 2020, compliance is linked to prohibitive fines based on the number of vehicles sold. Since standards will increase over time, automakers will have little choice but to shift their emphasis to electric vehicles.

Only seven of Volkswagen’s 14 most popular vehicles passed the new standards when they went into effect and VW has since had to make “adjustments” to its product lines. No wonder that VW is converting three of its German plants to produce electric vehicles.

In 20 European countries, the new higher emissions ratings translate into higher initial registration and annual road tax fees for gas-powered vehicles. Some European cities have low-emission zones with increased charges or outright bans, thus compounding the plight for the owners of high-emission vehicles.

In the German market, Tesla is now outselling Mercedes, BMW and Audi. In 2018, one Nissan Leaf was sold every 10 minutes in Europe.

The Volkswagen Group which includes Audi and Porsche and 10 other brands, together with China joint venture interests, intends to lead the pack by becoming the world’s number one producer of EVs. Three high-volume Volkswagen electric vehicles will join the electric e-Golf as part of the new VW ID lineup over the next four years, with more models coming in each year, beginning 2019. In 2018, Volkswagen started to build its first full-scale EV factory in China that will begin production in 2020.

As for other members of the VW family, Audi anticipates that fully and partially electric vehicles, under the e-tron brand, will account for 30 per cent of its sales by 2025. Porsche expects sales of its Taycan model to be 20,000, on par with other Porsche models, beginning with its launch in 2019/2020.

Mercedes will spend $11.8 billion (USD) developing 10 models for its all-electric EQ division by 2022. Mercedes will introduce its first all-electric vehicle, the EQC, in 2019 and is expanding production for both the Chinese and U.S. markets. BMW is also ramping up production of electrified models.

North America lags behind

So where does this leave North American automakers?

Canada’s 2019 budget is a smoke and mirrors disappointment.

Unlike China and the European Union with legislated/mandatory targets and penalties for non-compliance, Canada’s Budget 2019 provides $5 million over five years for Transport Canada to work with the automakers to establish voluntary sales targets on the availability of zero emission vehicles (ZEVs). By contrast, China’s sales/credits legislation goes further on ZEVs than the EU mandatory requirements by allocating extra credits for greater autonomy. Penalties can include the banning of model in the event an automaker is way off the targets.

Catherine McKenna, Canada’s environment minister, spoke of the “possibility” of a target of 100 per cent electric vehicles by 2040. But this isn’t much of a target, because EVs will reach purchase price parity between 2020 and 2025 and after that will be more attractive than gasoline-powered vehicles due to lower energy and maintenance costs. By 2040, Canada will be well on its way to seeing EVs dominate the market.

At least in B.C., the province requires 10 per cent of vehicle sales be ZEVs by 2025 and 30 per cent by 2030. In Québec, legislated mandatory plug-in vehicle quotas, similar to those of California, became effective in 2018. By 2025, more than 10 per cent of vehicles sold in that province will have to be electric. These provincial programs are a far cry from the requirements already in place in China which global automakers are able to accommodate with broad selections of vehicles. That said, the two provincial programs are of greater substance than the fuzzy, voluntary measures in the 2019 federal budget.

Canada’s remaining major policy tool to lower vehicle emissions is its corporate average fuel economy standards (CAFE) which are identical to those of the U.S.. But, thanks to the lobbying of automakers and Big Oil, U.S. President Donald Trump intends to freeze CAFE at 6.7 litres per 100 km from 2020 and onwards.

It would be nice if Canada, as a minimum, could align itself with California and 13 other states which are fighting the Trump administration’s decision to cancel the ability of these states to impose stricter fuel efficiency standards than the U.S. federal government. These so-called waiver states represent 40 per cent of the U.S.. In total, Attorneys General from 19 U.S. states are taking the matter to court.

However, not even the closure of General Motors’ Oshawa plant, which will throw nearly 3,000 people out of work, can shake the federal government from its slumber.

The 2019 budget allocates incentives for the purchase of EVs, but is a halfway measure offering less than the consumer rebate programs elsewhere. Only models with a manufacturer’s suggested retail price (MSRP) of less than $45,000 are eligible, which, in essence, restricts consumer choices to a handful of very limited availability models on the market with about 200km of electric autonomy. The Hyundai Kona sub-compact EV which offers over 400km on a single charge is only available in Canada in the top trim model at a MSRP of $51,999. The basic, lowest range, black, 354km Tesla Model 3 rear-wheel is priced at $47,600. Tesla charges $2000 more for other colours. The lower energy and maintenance costs more than compensate for the higher purchase prices of these vehicles.

In Québec, the rebates for EVs are $8,000 and $4,000 for plug-in hybrids and up to $600 for new charging units. There are no stipulations on the MSRP restrictions. EV demand now exceeds supply in Québec, even following a huge transfer of dealer stock from Ontario after Doug Ford’s government got rid of that province’s generous subsidies for EVs.

In B.C., rebates of up to $5000 are available for EVs and plug-in hybrids with over 15kWh of battery capacity, but this subsidy drops to up to $2,500 for plug-ins with less than 15kWh. Vehicles of more than $77,000 MSRP are not eligible.

At this point, it is important to point out that the U.S. experience with a $2500-$7500 (USD) tax credit for EVs, compared with the impressive legislative and policy agendas of China and the European Union, offers compelling evidence that consumer subsidies alone aren’t enough to assure interesting selections of EVs to accommodate the varying needs and preferences of the market. The U.S. tax credits have a limited shelf life as they terminate once a manufacturer has reached 200,000 in EV sales since 2010. Trump wants to end the EV tax credit but the Democrat majority in the House of Representatives will block this.

Canada’s 2019 budget is equally mediocre on charging stations. It adds $130M over five years, starting in the fiscal year 2019-20, for charging stations or hydrogen refuelling stations at workplaces, parking lots, commercial and multi-residential buildings and remote locations. If this is like the existing Budget 2017 program of $80M fund over four years for fast charging stations, it will offer repayable contributions covering 50 per cent of the cost. This pales by comparison to the $2.5B California commitment to install an additional 250,000 charging stations by 2030 and 200 hydrogen fueling stations by 2025; the EU requirement that all new and renovated homes are equipped with charging stations by 2019 and similar provisions in California; the over 50,000 charging units that were available in the U.S. in 2017; and the 130,000 new charging stations for Los Angeles in time for the 2028 Olympics.

Finally, in the 2019 budget there is the vague announcement that “some” of the $800M of additional funding mentioned in the 2018 Fall Economic Statement regarding the Strategic Innovation Fund would support ZEV manufacturing. This is too little too late. The few Canadian electric vehicle technology companies are transferring their activities outside of the country and/or are losing their global leadership. This is what happens when Canada doesn’t have a meaningful clean technology strategy.

Despite the policy vacuum described in this section, EV sales are growing in Canada. EVs represented three per cent of total Canadian new vehicle sales in June 2018 and four per cent of 2018 sales in Québec.

Automakers headed for a cliff?

Against this backdrop, it is conceivable that the U.S.-based automakers are headed for the brink once more. But unlike the bailouts that followed the 2008 recession, there’s no more political appetite for governments to step in and save the Big Three again.

GM’s major restructuring announcement last November may give the impression the company is serious about the transition to electric vehicles. But GM sold its European Opel division to France’s Groupe PSA because of stricter European Union corporate average emission standards. GM also led the $8.1-million lobbying of the Trump administration to weaken American efficiency standards. GM has said that 15 per cent of its sales will be all electric by 2025, but that mainly applies to China.

Ford appears to be content in having its China division take the lead on electric vehicles

Chrysler, which has been slow to research EVs, is a basket case having recently announced $4.5 billion (USD) to invest in building more light trucks and SUVs while half-heartedly suggesting plug-in hybrids are to come, but for now the plug-ins are destined for European markets only. North American plug-ins will be offered if there is enough demand!

Given all this, it’s no wonder that Canadian automotive parts manufacturer Magna International, with 51 factories in Ontario, is looking to China. Magna has engaged in a joint venture to take over BAIC subsidiary Beijing Electric Vehicle Company. BEVC has a facility in Zhenjiang with a production capacity of 180,000 vehicles per year.

Tales of three continents

There are three contrasting storylines on electric vehicles: EV sales in North America are expected to climb modestly from 405,000 in 2018 to 425,000 in 2019. Meanwhile, China is undergoing the most significant vehicle revolution since the advent of the Model T Ford. In Europe, the trend lies somewhere in between.

Globally, the automobile market has demonstrated it is heading towards EVs and other ZEVs. This shift is due aggressive government policies in China and Europe, which in turn generate wide selections of EVs, affordability and consequently high consumer demand.

The governments of Canada and the United States have let the flailing Detroit automakers drag their countries to the bottom of the clean technology pack in the developed world. Without bold incentives and strict standards, North America’s auto industry will end up broken down by the side of the road, watching Chinese taillights disappear.

Excellent analysis, thank you.
I have read there is an EV Pickup designed by a U of T engineering team but very limitied manufacture and apparently no Federal Government support. There is also a fully operational EV snowmobile which could rejuvenate that sector but again no government support. In addition there is a EV bus compam in Vancouver that is manufacturing EV double decker tour buses, school buses and smaller sizes but operations have pretty much moved to California where there is government support and a ready market.
Peter

As Petro-States, Canada, the US and Mexico answer to the Petro-Dollar that funds most major parties' expenses and campaigns. Get major funding out of politics AND lobbying (see SNL-Lavalin) and loosen the noose of the corporate world's strangle hold on what's left of democracy.

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