EV transition runs into more trouble as Transport Canada abruptly pauses rebate program

Tax credits, subsidies and other financial incentives have a clear impact on EV sales, economists say

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Published Jan 13, 2025  •  4 minute read

Transport Canada said it is suspending its EV subsidy program, which provided up to $5,000 to consumers for the purchase of a vehicle, shaving thousands of dollars off the price tag of a new EV. Photo by Sean Kilpatrick /The Canadian Press

The electric vehicle transition in Canada is hitting another speed bump, as major incentive programs that shave thousands of dollars off the price tag of a new EV are being curtailed and cut short.

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Transport Canada on Monday said it “paused” its financial incentive program over the weekend, which provided up to $5,000 to consumers, and Quebec said it plans to temporarily suspend its program, which had provided as much as $7,000 back, in February.

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Analysts have described such consumer rebates as a pillar that underpins EV sales, which accounted for 16.5 per cent of all new sales in the third quarter of 2024, their highest level to date.

The looming end to rebate programs has angered many in the auto sector who say it will make it challenging for automakers to meet federal and provincial EV sales mandates.

“This decision is particularly frustrating for dealers,” Charles Bernard, lead economist at the Canadian Automobile Dealers Association, said via email. “There is obvious hypocrisy in imposing ambitious (zero-emissions vehicle) targets and affiliated penalties on the industry and consumers when the government is showing a clear lack of motivation and support to meet these goals.”

The federal program, known as Incentives for Zero-Emission Vehicles (iZEV), was scheduled to expire in March 2025 or until funds ran out. A separate incentive program for businesses purchasing trucks will continue until March 2026 or until funds run out.

The issue hardly ends in Canada for automakers. Donald Trump, who becomes president of the United States next week, has also said he plans to scrap tax credits that provide up to US$7,500 on EV purchases.

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Economists say data shows tax credits, rebates and other financial incentives that lower the cost of an EV have a clear impact on EV sales.

Within Canada, the two provinces with the longest-running EV incentives programs, British Columbia and Quebec, which implemented programs in 2011 and 2012, respectively, have accounted for more than 60 per cent of all new EV sales in the country every year since 2019, according to a TD Economics report from October.

By contrast, Ontario had comparable sales to B.C. and Quebec until 2018, when it cancelled its incentive program — which provided up to $13,000 per EV — leading to a steep decline in sales, according to the same report.

“Sales in Ontario diverged from Quebec’s and have consistently remained lower in subsequent years,” Likeli Seitlheko, an economist at TD, said in the report. “It is likely that the decline would have been steeper … without the federal rebate, which became available starting May 2019.”

Her report estimated that fully battery-electric vehicles are on average 31 per cent more expensive and plug-in hybrids are 23 per cent more expensive than their comparable internal combustion engine models.

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The federal Incentives for Zero-Emission Vehicles (iZEV) Program “incented” more than 546,000 vehicle sales, according to Transport Canada, but it did not say how much money in total was disbursed.

As of Jan. 10, Transport Canada said there was still approximately $71 million remaining in the consumer program, but it announced on Monday that the program had run out of funds.

“Effective immediately, Transport Canada requests all manufacturers, dealerships and authorized sellers to stop offering the iZEV incentives to customers,” Transport Canada said in an email sent to auto industry professionals.

All claims are being honoured on a first-come basis, it said.

Bernard said that many dealers are now left wondering whether the incentives they’ve already offered to consumers will all be honoured by the federal government.

The end of the rebate “wasn’t well communicated to the public,” he said.

Analysts say announcements that signal an end to a government EV rebate program typically spur a surge in EV sales as consumers rush to take advantage.

That’s what happened in Quebec, which announced in mid-2024 that it would begin scaling back its incentive program in 2025.

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Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, said Quebec accounted for more than 50 per cent of all EV sales in the third quarter of 2024.

But the pace of sales quickly used up funds, and the province in December announced it would temporarily suspend its rebate program in February until late March so the program can be recapitalized under the provincial budgetary process, he said.

Given that Justin Trudeau, a big supporter of EVs, is resigning as prime minister and a federal election looks likely in the spring, Kingston said he doubts the federal incentive program will ever be reinstated.

“You will see an immediate decline in EV sales,” he said. “The question to me is, further down in the year, do you see a return to previous growth in sales rates?”

Krista Friesen, an analyst at CIBC Capital Markets who covers the auto sector, said 2025 is already proving challenging for the North American auto sector after the shift toward EVs failed to meet expectations last year.

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“There has been a notable slowdown in adoption in the U.S., China, and Europe,” she said in a note. “However, 2025 is expected to see a re-acceleration of adoption, though at a slower pace compared to earlier in the decade.”

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