Show Transcript
Electric vehicles continue to gain global market share, though uptake in Canada and the U.S. has been noticeably slower compared to other leading markets. Anthony Okolie speaks to Thomas Feltmate, Senior Economist, TD Bank, about commitments governments on both sides of the border can make to support the EV industry.
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- Thomas, you wrote a great report about the growing popularity of electric vehicles as well as some of the challenges that they're facing here in the Canadian and US markets. But before we get to that, talk to us about the electric vehicle sales penetration, what it's been in the global market.
- Sure. So I would say it's still relatively slow. So if we look at 2019 electric vehicle sales data, it shows that sales were about 2.1 million units, which was up about 4% relative to the year prior. But in terms of overall market share, it's still quite small, coming in at just over 2 and 1/2%.
Now, I'd say what is somewhat of an encouraging sign is if we pull the data back and we look over history for the last several years, we've definitely seen that market share kind of continue to inch higher, which is certainly encouraging, showing the popularity is growing, albeit I would say at a slower pace than some may have originally expected.
- And so what are some the headwinds that are preventing electric vehicles from penetrating particularly here at North America?
- Right. That's a great question. So I would say price point is really the major headwind facing consumers today. So EVs still come in at about $10,000 to $30,000 more than a comparable gasoline model. So obviously, that in and of itself has been a significant barrier.
Now, here in North America, we do have some incentives in place to help bring down that initial cost to consumers. So here in Canada, the government offers a maximum subsidy up to $5,000, whereas in the US, we have a subsidy of about $7,500. And of course, there's additional subsidies both at the provincial and state levels that provide a bit more of a buffer to consumers. But even after factoring in those incentives, what we're finding is consumers are still paying more out of pocket upfront, which is significantly weighing on sales here in Canada and the US.
So market share, to give an example in Canada, is about 3% today. In the US, it's slightly lower at 2%. Whereas if we look at comparable markets in, say, Norway, for example, where government incentives are much higher, basically offsetting a lot of the upfront costs and getting it to price parity with comparable gasoline models, market share there is somewhere closer to 50% to 60%. So significantly more generous incentives being offered across different areas in Europe, which has certainly led to stronger market penetration there.
And I would say the other major headwind facing both Canada and the US in terms of EV sales has been what we call range anxiety. And a lot of this stems from the fact that we just haven't seen the development of charging infrastructure build up quite as much as we would like to see to facilitate that rotation away from gasoline-powered models towards purely electric-driven models.
So obviously, there are some exceptions to the rule. So if there are people living in urban centers, for example, that are looking to buy a vehicle for a secondary purpose, electric vehicle for secondary purposes and just commute around the city, this isn't necessarily an issue. But certainly, when we consider those consumers that want to use it as a primary vehicle and perhaps do longer distance drives or live in a rural community, certainly is still a headwind that is tipping the scales in favor of gasoline-powered models still today.
- And I want to touch on your first headwind about around existing government policies. Do you see any potential changes here in Canada that will increase incentive for Canadians to buy electric vehicles going forward?
- Yeah, certainly. There has been a lot of talk. I would say the primary source that needs to be addressed first and foremost is going to be extending of the existing benefits that are in place. So back in May 2019, the government introduced the federal subsidy here in Canada with the idea that it would last for three years that allocated about $300 million to that subsidy. However, what we've found is only already a year and a half into the program, already 8% of those dollars allocated have been used So just to maintain status quo, that program is going to need to be topped up.
And then from there, there's also been additional considerations to tweaking the program to broaden out the consumer base so certain things like including a Cash for Clunkers program whereas if you trade in your gasoline model for an electric vehicle, you will get a rebate that will come on top of the federal subsidy.
Other things being considered would be a sales quota where manufacturers would have to hit certain sales, EV sales targets, each quarter or on an annual basis. Failure to do so would result in some sort of fine that they would have to pay. And there's also been talk about expanding eligibility to also include used vehicles as well.
So of course, with EVs growing in popularity, we've seen a growing base of trade-in activity happening. And that has led to an increase in the stock of used vehicles that are also coming to market now. So obviously, they're going to be coming in at a lower price point given that some of the depreciation has already happened in those vehicles. So expanding federal subsidies to also include used vehicles and offering further subsidies on top of that would certainly help broaden the consumer base.
- Thomas, thank you very much for your time.
- You bet. Thanks for having me.
[MUSIC PLAYING]
- Thomas, you wrote a great report about the growing popularity of electric vehicles as well as some of the challenges that they're facing here in the Canadian and US markets. But before we get to that, talk to us about the electric vehicle sales penetration, what it's been in the global market.
- Sure. So I would say it's still relatively slow. So if we look at 2019 electric vehicle sales data, it shows that sales were about 2.1 million units, which was up about 4% relative to the year prior. But in terms of overall market share, it's still quite small, coming in at just over 2 and 1/2%.
Now, I'd say what is somewhat of an encouraging sign is if we pull the data back and we look over history for the last several years, we've definitely seen that market share kind of continue to inch higher, which is certainly encouraging, showing the popularity is growing, albeit I would say at a slower pace than some may have originally expected.
- And so what are some the headwinds that are preventing electric vehicles from penetrating particularly here at North America?
- Right. That's a great question. So I would say price point is really the major headwind facing consumers today. So EVs still come in at about $10,000 to $30,000 more than a comparable gasoline model. So obviously, that in and of itself has been a significant barrier.
Now, here in North America, we do have some incentives in place to help bring down that initial cost to consumers. So here in Canada, the government offers a maximum subsidy up to $5,000, whereas in the US, we have a subsidy of about $7,500. And of course, there's additional subsidies both at the provincial and state levels that provide a bit more of a buffer to consumers. But even after factoring in those incentives, what we're finding is consumers are still paying more out of pocket upfront, which is significantly weighing on sales here in Canada and the US.
So market share, to give an example in Canada, is about 3% today. In the US, it's slightly lower at 2%. Whereas if we look at comparable markets in, say, Norway, for example, where government incentives are much higher, basically offsetting a lot of the upfront costs and getting it to price parity with comparable gasoline models, market share there is somewhere closer to 50% to 60%. So significantly more generous incentives being offered across different areas in Europe, which has certainly led to stronger market penetration there.
And I would say the other major headwind facing both Canada and the US in terms of EV sales has been what we call range anxiety. And a lot of this stems from the fact that we just haven't seen the development of charging infrastructure build up quite as much as we would like to see to facilitate that rotation away from gasoline-powered models towards purely electric-driven models.
So obviously, there are some exceptions to the rule. So if there are people living in urban centers, for example, that are looking to buy a vehicle for a secondary purpose, electric vehicle for secondary purposes and just commute around the city, this isn't necessarily an issue. But certainly, when we consider those consumers that want to use it as a primary vehicle and perhaps do longer distance drives or live in a rural community, certainly is still a headwind that is tipping the scales in favor of gasoline-powered models still today.
- And I want to touch on your first headwind about around existing government policies. Do you see any potential changes here in Canada that will increase incentive for Canadians to buy electric vehicles going forward?
- Yeah, certainly. There has been a lot of talk. I would say the primary source that needs to be addressed first and foremost is going to be extending of the existing benefits that are in place. So back in May 2019, the government introduced the federal subsidy here in Canada with the idea that it would last for three years that allocated about $300 million to that subsidy. However, what we've found is only already a year and a half into the program, already 8% of those dollars allocated have been used So just to maintain status quo, that program is going to need to be topped up.
And then from there, there's also been additional considerations to tweaking the program to broaden out the consumer base so certain things like including a Cash for Clunkers program whereas if you trade in your gasoline model for an electric vehicle, you will get a rebate that will come on top of the federal subsidy.
Other things being considered would be a sales quota where manufacturers would have to hit certain sales, EV sales targets, each quarter or on an annual basis. Failure to do so would result in some sort of fine that they would have to pay. And there's also been talk about expanding eligibility to also include used vehicles as well.
So of course, with EVs growing in popularity, we've seen a growing base of trade-in activity happening. And that has led to an increase in the stock of used vehicles that are also coming to market now. So obviously, they're going to be coming in at a lower price point given that some of the depreciation has already happened in those vehicles. So expanding federal subsidies to also include used vehicles and offering further subsidies on top of that would certainly help broaden the consumer base.
- Thomas, thank you very much for your time.
- You bet. Thanks for having me.
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