What ails Canada’s EV sector? ‘Everything, everywhere, all at once’

For many companies in the EV space, the biggest question is what it will take to reverse the declining momentum and regain solid footing

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Published Dec 26, 2024  •  Last updated 0 minutes ago  •  5 minute read

Canada not only needs better charging infrastructure and financial programs to make EVs affordable for consumers, but also more investment in the supply chain that automakers rely on to build EVs. Photo by PETER POWER/AFP via Getty Images files

If Canada’s electric vehicle transition started out the year with a burst of momentum, one that was riding high amid billions of dollars of public and private investment, then it was also the year when things started to go on the skids.

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Shares of Lion Electric Co., the Saint-Jérôme, Que.-based electric truck and bus maker that was once considered as perhaps Canada’s best shot for a homegrown EV success story, have dropped more than 85 per cent this year, its president resigned this month amid mounting debt and layoffs and it then announced on Dec. 17 that it expects to seek creditor protection under the Companies’ Creditors Arrangement Act (CCAA) in order to restructure its business after defaulting on its debt.

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But it wasn’t alone in having a difficult year. La Salle, Que.-based Taiga Motors Corp., which planned to make electric snowmobiles and watercraft, was sold on undisclosed terms this past October, just months after it sought protection under the CCAA.

There were other signs elsewhere that the EV transition is losing steam.

This past summer, Belgium’s Umicore SA paused construction of its proposed $2.7-billion battery parts plant in Ontario, while Ford Motor Co. delayed plans to produce EVs at its Oakville, Ont., assembly plant indefinitely, saying it would instead begin producing its F-Series Super Duty gas-guzzling trucks at the plant.

For many companies in the EV space, the biggest question is what it will take to reverse the declining momentum and regain solid footing.

“I think Canada really needs to start backing and championing entrepreneurs in this space,” Matthew Fortier, president of Accelerate, an advocacy group for companies in the Canadian EV supply chain, said. “When there are hiccups, we need to stay the course. We wouldn’t be the only country in the world backing companies that are taking big swings.”

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In terms of what that support would look like, he said “everything, everywhere, all at once.”

Canada needs more and better charging infrastructure, Fortier said, but also more financial programs to make EVs affordable for consumers and businesses and more investments in the supply chain, independent from China, that automakers need to build EVs.

“That’s a huge order to fill, but it’s one we can do,” he said. “This isn’t the first time we’ve wanted to do big things here as a society.”

To be fair, it hasn’t been all bad news for the EV sector since sales continue to climb upwards.

Last quarter, zero-emission vehicles accounted for 15.7 per cent of all new vehicle registrations in Canada, according to Statistics Canada, a 31.8 per cent increase from the third quarter of 2023.

But Andrew King, managing partner at DesRosiers Automotive Consultants Inc., said EV sales growth has not been as robust as some analysts had projected.

“Price is going to be a critical variable,” he said.

King said financial incentives that lower the price tag play a key role in driving sales of EVs.

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Indeed, British Columbia and Quebec have collectively accounted for at least 60 per cent of all zero-emission vehicle sales in Canada every year since 2019, despite representing only 36 per cent of the country’s population, according to a TD Economics report from October.

It attributed those provinces’ outsized share of EV sales to their incentive programs, which knocked as much as $4,000 to $7,000 off the overall purchase price.

But Quebec has signalled that it plans to begin phasing out its incentive program while B.C. has narrowed eligibility for its program.

For now, EV sales will continue to grow, he said, noting the federal government has mandated that 20 per cent of all new vehicle sales in Canada be zero-emission vehicles by 2026. Missing those targets will result in stiff penalties for automakers, he said. And Quebec in December said it will ban the sale of most new gas-powered automobiles as of 2035.

“They’re going to continue to gain market share,” King about EVs. “In some ways, for now, (the EV transition) can’t go off track because it’s the law.”

But there is real uncertainty for Canada’s auto sector, including EVs, John McNally, a senior adviser on climate and socioeconomic policy research at the Bank of Nova Scotia, said in a report in December.

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As Donald Trump prepares for his second term as president of the United States, he has talked about rolling back various policies, such as repealing the Inflation Reduction Act (IRA) and assessing 25 per cent tariffs on Canadian imports.

Canada’s auto sector exports 91 per cent of its vehicles and parts to the U.S., according to a recent report by McNally. That means those tariffs and the potential repeal of the IRA — which contains financial rebates of up to US$7,500 for EVs, in addition to providing tax credits for EV manufacturing — could have ripple effects in Canada.

“There’s just a lot of uncertainty. It’s not 100 per cent clear what happens with the tariffs, whether they get implemented fully, partially or whether there are carve-outs … right now, it’s not 100 per cent clear,” he said. “We’ll find out in January, I guess.”

The auto sector, however, has only just emerged from a series of setbacks that date back to pandemic-era supply chain snafus that slowed production, which were followed by semiconductor chip shortages that again slowed production and then rising interest rates that curbed demand for new vehicle purchases.

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Now, all those challenges are clearing, but the prospect of tariffs looms, McNally said.

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Since 2015, the North American auto market sector has lost two per cent of its share of global exports, while Asian countries, dominated by China, Japan and Korea, have gained seven per cent.

“North America’s auto sector does have a real opportunity to capture some of the growth it lost,” he said, “but there’s a lot of uncertainty.”

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