Why B.C.'s new ZEV rebate changes have the industry feeling hung out to dry

British Columbians could face punishing sticker prices and increasingly slim pickings on dealership lots over the next few years as the provincial government barrels ahead with its zero-emission-vehicle sales mandate while undercutting support for buyers of those vehicles, auto industry leaders say.

B.C. has long been the leading province for ZEV uptake, but a recent overhaul of its rebate program that eliminated about 75 per cent of eligible vehicles is both disruptive to industry and counterproductive for buyers, said David Klan, president of Mazda Canada.

“The unintended consequences for consumers could be very large,” Klan said.

The changes in mid-June to B.C.’s Go Electric Passenger Vehicle Rebate Program lowered the eligibility price ceiling for zero-emission cars to $50,000 from $55,000. Utility vehicles were also reclassified as “cars,” meaning fewer qualify for rebates.

That leaves pickups and minivans in the “large ZEV” category, in which vehicles with sticker prices up to $70,000 are eligible for rebates of up to $4,000 each.

The move was done with no industry consultation, said Blair Qualey, president of the New Car Dealers Association of British Columbia (NCDA). The association got a last-minute headsup from government because it administers the program, but the communication was less an invitation for input than notice that “this change is coming, and we need you to get prepared to implement it,” Qualey said.

The NCDA has already seen a slowdown in rebate applications, although with the change only weeks old, Qualey said, it was too early to meaningfully quantify the decline.

“We’ll see how it settles out in the coming weeks and months,” he said.

The B.C. Ministry of Energy, Mines and Low Carbon Innovation, which oversees the rebate program, would not make Minister Josie Osborne available for an interview. In written responses to questions, the ministry said it “needed to make adjustments” to the program because ZEV sales were increasing faster than anticipated, straining available rebate funding.

PRICE CUTS? NOT SO FAST

The ministry said it isn’t concerned that the changes will stall EV adoption. The move will “push manufacturers to lower their prices” and “ensure rebates are targeted to vehicles for middle-income families,” it said.

But pricing adjustments have been the exception, not the norm, so far.

Mazda, for one, made no immediate changes. The brand had three models that qualified for the rebate before the changes and now it has one. Product planning decisions don’t happen overnight, said Mazda Canada’s Klan, and any adjustment from the company won’t occur until the next model year.

“It’s not something we can knee-jerk like the government does with an abrupt change overnight, unannounced and unplanned,” he said.

One automaker did cut prices to continue to qualify for the rebate. Tesla cut the starting price of its Model 3 to $49,990 from $50,990, allowing the sedan to remain eligible for the incentive. The move was significant, as the Model 3 accounted for about 15 per cent of provincial rebate claims in 2023, according to provincial data obtained by Automotive News Canada through the Freedom of Information and Protection of Privacy Act.

But Tesla’s far more popular Model Y crossover, which accounted for about 35 per cent of rebate claims in B.C. last year, no longer qualifies.

The sudden changes in B.C. only add “friction” for EV buyers, said David Adams, president of the Global Automakers of Canada, which represents overseas brands in the country.

“The government has laid down the policy of what they want to achieve and it’s contingent on the government to provide mechanisms that will allow consumers to purchase the vehicles that they want them to.”

FEWER REBATES, MORE MANDATES

The rebate overhaul follows a toughening of B.C.’s ZEV sales mandate enacted last fall. 

It requires ZEVs account for 26 per cent of new-vehicle sales by the 2026 model year, 90 per cent by 2030 and 100 per cent by 2035. Automakers face penalties of about $20,000 per vehicle if they fail to meet the targets or acquire offset credits from other automakers.

The province has made significant headway on the 2026 target, but uptake will need to rise steeply to meet the government’s 2030 target.

ZEV registrations in B.C. topped out at 23.2 per cent of total new-vehicle registrations in the third quarter of 2023 but had fallen back to 19.8 per cent by the first quarter of this year, according to the latest data available from Statistics Canada.

Despite the cut to consumer supports for costlier vehicles, the B.C. government says its targets are achievable.

The industry disagrees.

Qualey said B.C. has seen a major success in raising its EV adoption rate over the past few years. But with early adopters now satisfied, he said, sales growth was already slowing to start 2024, even before the changes to the rebate. The so-called early majority of buyers aren’t as easy to convert, he said.

“It’s now the big group in the middle of folks who ask some pretty good and tough questions,” Qualey said, “starting with: ‘What’s this thing going to cost me?’ ‘How far is it going to go?’ ‘Where am I going to charge it?’ ”

Particularly by 2030, Qualey said, the provincial sales mandate is likely to create an affordability crisis as automakers are pushed into a corner.

“We’re going to see manufacturers forced to restrict the supply of vehicles into this jurisdiction ... to meet these arbitrary targets,” he said. “It’s a ratio, and if you can’t fix the top part, which is the number of EVs you sell, ... then you have no choice [but] to reduce the total supply of vehicles you send to the province.”

As seen during the inventory shortages of the pandemic, short supply means high costs, Qualey said.

Klan sees much the same outcome, since the 2030 target looks “unachievable” for Mazda and most other automakers.

“I can envision customers having less choices, less supply to select from and higher prices,” he said.

BUY CREDITS, OR PAY THE PRICE

Mazda has already purchased credits from Tesla to help it meet its obligations, according to government records. And buying more credits is one of three options the brand has moving forward, Klan said. The others are selling fewer vehicles or paying the “punitive” penalties.

But with Mazda Canada aiming to continue growing its market share in B.C., restricting supply will be a measure of last resort, Klan said.

Mazda isn’t the only automaker weighing its game plan for the province. Qualey said several automakers have had preliminary communication with their dealers in B.C. about the impending reductions in vehicle allocations for the province if the mandate remains in place.

In light of this, however, Qualey said there’s no indication that the B.C. government is rethinking its policy.

Ultimately, Klan said, the province will have to go back to the drawing board as automakers and other governments scale back their initial ZEV goals. Both the provincial sales mandate that’s more aggressive than those at the federal level, or even California, as well as the “inordinately large” penalties for automakers that fail to meet it, will need to be reassessed, he said.

The federal sales mandate requires ZEVs to be 60 per cent of vehicle sales by 2030, while the California Air Resources Board stipulates 68 per cent. Both are lower than B.C.’s 90 per cent.

The province’s Ministry of Energy, Mines and Low Carbon Innovation didn’t rule out changes. It said it’s “constantly monitoring EV uptake in British Columbia and adjusting our programs to help the most people have access to EVs.”

— Greg Layson contributed to this report.