Should Ottawa look to Chinese imports in meeting its EV targets?

The revolution in electric vehicles (EVs) appears to have stalled. “Appears” is the operative word, since most of the factors holding back expected rapid growth in EV sales are short term in nature. But the stall raises questions about Canada’s ability and long range plug in hybrids accounting for at least 20 per cent of all new vehicle purchases by 2026 and 100 per cent by 2035.

It also casts doubt on Canada’s strategy to become an EV superpower. That strategy has seen governments commit an estimated $37.7 billion in grants and subsidies to new Canadian plants making EV batteries and components. That doesn’t include the recently reported possibility of . The Honda negotiations are in early stages, and Honda might opt instead to expand its existing North American EV hub in Ohio.

B.C. and Quebec have already exceeded Ottawa’s 20 per cent target on EV adoption by 2026. But no other province registers above eight per cent. For now, prospective EV buyers are balking at high EV prices, a shortage of EV charging stations and a lack of selection in EV models. Other factors include high interest rates, “range anxiety” (fear of getting stranded when an EV runs out of juice), and a moderation in the high gasoline prices of 2021 to early 2023 that made a lot of EV converts.

Finally, automakers have protested that they cannot ramp up production enough to meet targets set by Canada and the U.S. Despite all that, Canadian EV sales continue to climb. EVs accounted for one in eight new vehicle purchases in last year’s third quarter, according to the federal ministry of environment and climate change.

That’s up from one in 10 in the previous quarter. But Canadian interest in EVs has waned, as it has in the U.S. Last month, released its 2023 data on top searches on its marketplace site. In 2023, only 56 per cent of users expressed an interest in someday buying an EV, a drop from 68 per cent in 2022.

And searches by Canadian site users committed to buying an EV accounted for less than three per cent of total searches on the site. U.S. sales of EVs are expected to increase by just 11 per cent this year, down sharply from surges of 60 per cent in 2022 and 47 per cent in 2023. In response to tepid EV sales, Ford, GM, Volkswagen, Mercedes Benz and other automakers have slashed their EV production volumes.

Price is the most frequently cited reason for reluctance to buy an EV. Average EV prices in Canada, at $80,000, are about $17,000 higher than for comparable gas powered vehicles, according to auto market authority . That premium is only partly covered by federal rebates and those offered by certain provinces.

(Ontario does not offer rebates.) And yet, the slowdown should be seen as a mere speed bump in the EV revolution. Battery technology is improving. Range has already tripled over the past decade. On the selection front, consulting firm S&P Global Mobility forecasts an additional 41 low emission vehicles on the Canadian market in 2024.

Ottawa is adding about 70,000 public charging stations to the 25,000 charging ports now in operation at 10,568 locations. Borrowing costs for new EVs will drop over the next two years. Automakers have proved that they can meet imposed by B.C., Quebec and California. And on price, Chinese EV makers have made substantial inroads in Europe with models like the BYD Seal, an urban sedan runabout with 204 hp that is priced at just $35,000 before rebates.

Closer to home, EV showroom prices have already been slashed in a price war launched last year by Tesla. They will come down further as automakers emulate their cousins in China in reducing production costs. Chinese EVs are priced at an average of $45,000, more than 40 per cent below the average Canadian EV price.

True, BYD and its many Chinese peers benefit from lower labour costs than global automakers. But that advantage accounts for only part of the wide price differential. In focusing on EVs for decades, China’s automakers have developed remarkably cost efficient methods of EV manufacturing. By contrast, their global counterparts, at enormous cost, must retrofit for EV production their decades old plants designed to make gas powered vehicles.

Allowing Chinese EV imports in Canada is a resort to which Ottawa can turn in reaching its EV targets. Obviously that method of cutting Canadian EV prices is politically fraught. But it’s worth noting that Canadians quickly adopted to cheap, reliable, fuel efficient Toyotas, Hondas and Datsuns (later Nissan) in the 1970s and 1980s.

They didn’t care about the vehicles’ nationality. It might not come to that in the EV transition if global automakers can narrow the value gap with their Chinese competitors..