EV sticker shock could get even more shocking

The federal government’s proposed zero-emission-vehicle sales mandate aims to increase vehicle availability and help cut costs for battery electrics. But the legislation is likely to raise, not lower, upfront prices for car buyers, at least in the short term, industry experts warn.

The first modern EVs have been on the road for more than 10 years. During that time, the price gap between EVs and internal-combustion-engine (ICE) vehicles has only widened, said Robert Karwel, senior manager of the Canadian automotive practice at J.D. Power.

“The gap’s rising, not falling,” he said, pointing to J.D. Power data showing that the average transaction price for an EV today is about $14,000 higher than the average price of an ICE vehicle. That’s without government incentives.

The price discrepancy is not entirely the fault of EV technology, Karwel said, but a result of Canadians’ decades-long embrace of larger vehicles.

“We are ramping up a lot of much nicer, larger, heavier, more lavishly equipped EV offerings, hence prices are rising,” he said.

Compared with the car-dominated streets of the past, 85 per cent of Canadians today buy SUVs or pickups, Karwel said. This trend extends into EVs, where large, costly batteries are needed to propel increasingly weighty vehicles, he said.

RULES RAISE PRICES

For automakers, the pace of regulatory change and the challenge of rapidly establishing a supply chain for EVs in North America will come at a cost, said Stephen Beatty, vice-president and corporate secretary at Toyota Canada.

“The impact of that is, frankly, ... going to drive up transaction prices on vehicles,” Beatty said. “It may limit choice in the marketplace as we move forward, at least through to that 2035 period,” the year by which all new passenger vehicles and light trucks sold must be ZEVs.

Toyota, the largest producer of vehicles in Canada and the country’s third-largest automaker by sales last year, is typically seen as lagging in the transition to EVs. The company has been a vocal opponent of the federal ZEV mandate. Toyota maintains that material supply challenges for lithium and other metals will push vehicle prices upward, undercutting affordability.

The federal government also warned about higher vehicle prices stemming from the mandate as it laid out its draft ZEV regulations at the end of 2022.

The higher upfront cost of ZEVs in the early years is expected to have a disproportionate impact on Canadians unable to afford a ZEV, Environment and Climate Change Canada wrote in Canada Gazette, a federal publication.

COST UP, INTEREST DOWN

Many car buyers are already balking at the high upfront cost of EVs.

A survey conducted in March by AutoTrader.ca found that 68 per cent of respondents not considering an EV for their next purchase flagged price as a reason.

The survey also showed interest in EVs has dropped: 56 per cent of the roughly 1,300 Canadians polled said they were considering an EV for their next vehicle, down from 68 per cent in the same survey in 2022.

High gasoline prices contributed to a spike in EV interest in 2022, said Baris Akyurek, vice-president of insights and intelligence at AutoTrader.

“Alongside prices, there’s also concerns around range and charging infrastructure gaps,” Akyurek said.

But there is more than the sticker price to consider when comparing EVs to ICE vehicles, said Ekta Bibra, senior policy adviser for clean transportation at Clean Energy Canada. When weighing the total cost of ownership, she said, EVs are already ahead.

Clean Energy Canada, a Vancouver-based think tank, published a report last spring comparing the overall cost of EVs and their ICE counterparts over eight years of ownership. After factoring in the initial price, the cost of electricity versus gasoline or diesel, and savings on maintenance, all but one of the EVs tracked proved to be cheaper than comparable ICE vehicles.

The Ford F-150 Lightning pickup was the sole exception to come in more expensive than its gasoline counterpart.

INCENTIVES NEEDED, FOR NOW

While upfront EV costs are trending down, Bibra said, referring to recent price cuts by Tesla and other automakers, more government incentives will be needed to level the playing field with ICE vehicles in the short term. Provincial rebates to stack with the $5,000 federal EV incentive are available in about half of the country currently.

Addressing Canadians’ preference for larger, costlier vehicles is another priority, Bibra said. She expects the federal ZEV mandate will help reverse this trend.

“If an automaker is required to make available for sale 60 per cent of their vehicles by 2030 to be electric models, it can’t be making just pickup trucks or just luxury SUVs,” Bibra said. “They have to start making vehicles that all Canadians want . . . at a price point that they’re able to purchase.”

J.D. Power’s Karwel, on the other hand, said he does not see “any relief in sight” on EV pricing or a shift in consumer preferences as a result of the ZEV mandate.

Over the past 30 years, he said, Canadian consumers have pushed unrelentingly toward larger, heavier and more expensive vehicles. Automakers are “going to fish with a fishhook,” Karwel said, meaning they will simply electrify the larger utility vehicles that consumers are demanding.