Electric vehicles in a dead end

Last year, the equivalent of 16% of new vehicles in Quebec were electric. Question: will we reach the required 45% in three years? Or even 75% in five years?1




The answer is important, because it appears in the Quebec government’s ambitious plan to reduce our GHGs. And the 45% target is not aesthetic: if manufacturers do not reach it, they will have to pay a heavy penalty, the equivalent of $20,000 per car not sold below the target.

In other words, for each 100 vehicles sold, if the government target is 22 electric vehicles, a manufacturer that only sells 19 would have to pay $60,000 in penalties. Ouch!

This target of 22%, precisely, is the level required by Quebec for the 2025 model year, which dealers are starting to sell these days. And this target jumps over the years.2

Note that Quebec is not the only one to impose this demanding VZE standard, the acronym for zero-emission vehicles. The federal government recently launched a very similar standard, as did British Columbia and Quebec.

And in the United States, eleven states also have a ZEV standard, including California, Colorado, Massachusetts, New Mexico and New York. By 2027, therefore, more than 40% of the North American market will impose steep fines in the event of non-compliance with targets.3

The ultimate objective of these targets is to encourage manufacturers to work harder to produce electric vehicles (EV). And to force them either to reduce the price of EVs to increase sales, or to increase the price of polluting SUVs to finance the $20,000 penalties.4

However, two headwinds are blowing against these objectives. First, growth in EV sales is slowing around the world, in particular due to the high cost of vehicles. Some manufacturers, like Ford, have also reduced planned production.

Then, experts struggle to see how manufacturers will manage to turn the corner so quickly, given production capacities.

A recent study from the CD Howe Institute5 concludes that from 2028, demand for EVs cannot be satisfied, given the expected pace of factory construction and the impact on production chains. It even estimates that in 2035 – when 100% of new vehicles should be electric according to regulations – half of EV sales will not be able to be filled.

Author Brian Livingston notes that the ZEV standard in the United States and environmental policies risk attracting sales there, causing a stock shortage in Canada. “Policymakers would be better off abandoning the perfect 100% ZEV target and accepting a more realistic target that still delivers good results,” he writes.

The target requirement resonates particularly in Quebec. Some environmentalists believe that the bar is set too low, given the climate emergency that has been repeatedly demonstrated. But this target remains the most restrictive of the North American states that I have been able to compare.

For example, in 2027, the target is 45% in Quebec compared to 35% in California. Or even 75% in 2029 compared to 63% in California.

In Quebec, EVs will account for around 16% of new vehicle sales in 2023, a larger share than elsewhere in Canada, with the exception of British Columbia (18%).1

And we can expect a small boom in demand in Quebec before the Roulez vert program subsidy is abolished at the end of 2026, but what will happen after that?

Among dealerships, the end of Roulez vert is a shock. “The decision to abandon purchase subsidies, while maintaining the penalties associated with the targets, is a major disavowal of the Quebec government,” argues the Corporation of Quebec Automobile Dealers, according to which parity of vehicle prices electric and gasoline is far from being achieved.

Like dealers, car manufacturers also criticize the end of Roulez vert. As for the restrictive targets and the $20,000 penalties, they believe that they could cause perverse effects.

For example, some manufacturers might prefer to reduce their sales of gasoline vehicles in Quebec as a way to avoid penalties, rather than increase sales of EVs. In other words, manufacturers could play on the denominator of the EV target equation rather than the numerator, which risks causing stock shortages of gasoline vehicles.

“We would offer less choice to consumers and that would hurt dealers and the economy,” Patrick Maltais, director of Quebec affairs for the Global Auto Manufacturers of Canada association, told me.

According to Mr. Maltais, it is hardly possible to sell smaller and cheaper EVs in Quebec, as in Europe (for example the Volkswagen ID3). For what ? Because even if there was a certain market for these smaller EVs, it is North American demand that dictates the decisions of manufacturers, and this demand rejects small vehicles.

At the Quebec Ministry of the Environment, we are still optimistic about achieving the binding targets. First, many manufacturers have significant credits in the bank for EVs sold in the past, which can be applied to future targets.

Then, EV prices will eventually fall, the ministry bets, as is the case with all new technologies, and more affordable models will be offered. Finally, the government is ensuring that the charging network is quickly increased, which will give consumers confidence.

“We are confident that a majority of manufacturers will comply with the ambitious requirements of the ZEV standard,” a political attaché wrote to me.

My question remains, despite everything: will we reach the 45% required in three years? A dead end is in sight, in my opinion.

1. In this proportion of 16% for 2023, a plug-in hybrid vehicle is equivalent to half an electric vehicle, as required by Quebec’s zero-emission vehicle (ZEV) standard of 2025. From the 2025 model year, only hybrids plug-in hybrids with more than 80 km of electric range will be entitled to this half-credit (a partial credit will be granted for plug-in hybrids between 50 and 80 km of range until 2027).

2. Small manufacturers (who sell fewer than 4,500 vehicles per year in Quebec) are not subject to the law. This is the case for Jaguar, Land Rover, Porsche and Volvo.

3. See “Canada’s Electric Vehicle Availability Standard”

4. Manufacturers can also buy the missing credits from other manufacturers who have too many – like Tesla – but the progression of government requirements is such that within three years this escape route, in a way, will no longer be possible.

5. Check out the C. D. Howe Institute study


source site-55