The government clarified its ZEV policy, but questions remain about how effective it will be at achieving its objectives.
In the March 19 federal budget, the Liberal government, as expected, announced a federal incentive program of up to $5,000 for the purchase of an electric or fuel cell vehicle — but only for qualifying models with a base MSRP of $45,000.
Now, strictly based on the wording in the budget documents, that would have meant that a total of seven vehicles out of about forty battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs) qualified for the incentive.
But while fuel cell vehicles were referenced by name in these documents, there are not, nor will there be any $45,000 fuel-cell vehicles on the road for a number of years. What was left unsaid in the documents for the consumer incentives was the fate of PHEVs.
While being specifically referenced as part of the zero emission vehicle (ZEV) business capital cost allowance write off, PHEVs were kind of forgotten in the wording for the consumer incentives.
A couple of days after the budget was released, it was finally clarified that — yes, PHEVs would be part of the consumer incentive program. That now means that about eighteen vehicles will be eligible for the rebate.
However, just a few weeks after Fiat Chrysler announced it was shutting down its third shift at the Windsor minivan facility in Ontario — which happens to build the only PHEV vehicle in Canada — the Minister of Innovation, Navdeep Bains said the Pacifica PHEV would also be eligible for the incentive. (It’s also worth noting that the vehicle carries an MSRP north of $50,000.)
In the final details that were subsequently rolled out, there is now a so-called “Pacifica” incentive which means that any seven-seat vehicle with a base trim MSRP of no more than $55,000 will also qualify for the $5,000 incentive.
Needless to say, while there remains a lot of confusion around the program more than three weeks after the incentive was announced in the budget, clarifications have finally been made over the last couple of weeks, and, in fairness, getting any new program kick-started by the government within a few weeks is nothing short of miraculous. But they have done it. The program began on May 1, 2019, and there will be no retroactivity applied.
Now the promise of an incentive of up to $5,000 to assist Canadians in purchasing a zero emitting (or in the case of PHEVs — low emitting) vehicle may have merit when you consider that the price gap between regular internal combustion engine (ICE) vehicles and PHEVs and BEVs can be thousands if not tens of thousands of dollars. For shorter range PHEVs, such as those with a battery less than 15kWh — or an electric range of less than about 50 kms — the incentive will be $2,500.
An incentive helps to reduce that gap to make the consideration of a ZEV more attractive to consumers. Moreover, virtually every study has shown that without incentives, ZEVs largely languish on dealer lots.
Over time — perhaps another generation or two of ZEVs — that price gap will come down as the cost of batteries on a kWh basis declines, while the energy density improves. In the meantime, incentives may be a necessary evil.
Why an evil? Depending on where you “cut the line”, competitive vehicles priced within a few thousand — or even a few hundred dollars — of each other are no longer competitive because one will obtain the incentive whereas others won’t.
Moreover, if you don’t have all of your ducks in a row when rolling out the program, then there is both confusion and uncertainty. And, just like businesses, in the face of uncertainty and confusion about whether or not the ZEV that they are considering purchasing will be eligible for the program or not, consumers sit on their hands effectively freezing out all ZEV sales until the program metrics are sorted out. That is what has happened with the federal program since the budget announcement and the program’s implementation in May.
Thus, while the incentive is of assistance for consumers, it is problematic in its distortion of the marketplace, pitting eligible vehicles against ineligible vehicles, and also in terms of the chilling effect a program has on ZEV sales.
So enough about the federal government’s consumer ZEV incentive program. The more compelling program announced in the budget is the Capital Cost Allowance provision for businesses with respect to ZEVs. This allows businesses the opportunity to write-off the entire cost of the vehicle (up to a limit of $55,000) for the year that the vehicle is first put into use.
This makes a lot of sense as it provides a very valuable incentive to businesses to purchase ZEVs. Additionally, fleet managers and business owners actually consider the total cost of ownership of the vehicle over its lifetime, because reducing that cost is what it’s all about when it comes to profitability.
By contrast, most individuals only look at the initial cost to purchase a ZEV, and don’t fully consider the life-time cost savings of lower maintenance and significantly lower fuel costs with electricity.
Also, if you consider that some of these fleets may be taxi fleets or perhaps car-sharing fleets, this would provide Canadians with actual experience in a ZEV — which very few individuals actually have. Study after study has concluded that one of the best ways to convert consumers over to ZEVs is to actually experience the vehicle as the driver or the passenger.
The other challenging policy issue for ZEVs right now is the practical reality that, out of the 40 ZEVs offered in the Canadian marketplace today, only about 11 of them are what one would consider utility vehicles. This severely limits the choice for consumers who are looking to buy more ZEV SUVs or trucks, because currently there simply are not that many model offerings in that space.
This is problematic when one considers that in March, almost 75 per cent of all vehicles purchased in Canada were light-duty trucks. Given that most of the ZEVs that are being sold at the moment are compact passenger cars, consumers are being incented to replace what is probably a smaller, fuel-efficient gas vehicle that sits parked 95 per cent of the time, with a smaller ZEV that will sit parked 95 per cent of the time. It would seem to me that the GHG emissions reductions in this type of ZEV uptake scenario are not that great.
What do the market dynamics mean for provinces that have or will have ZEV mandates, such as Quebec and B.C.?
Regardless of how rich the incentive is that you put on the hood of a car, will a cheaper price convince someone to move from a pickup truck to a Nissan Leaf?
Manufacturers in both provinces will be mandated to sell a certain percentage of ZEVs or face significant fines. It is far too simplistic to say that ZEV mandates in Quebec and B.C. will force manufacturers to make more models, including SUV and pickup truck ZEVs, available.
The entire Canadian auto market represents about two per cent of global sales, so even if the entire nation had a ZEV mandate, Canada is not going to drive which vehicles get manufactured, nor how many get allocated to the Canadian market as the world — driven by China — transitions into different propulsion technologies.
Right now producing ZEV SUVs and pickup trucks is a technological issue, and until that gets solved, mandate or not, we are not likely to see huge ZEV sales growth.
