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Maxed Out: Exploring the economics of EV adoption

Maxed out EV April 22
How much does a new electric vehicle cost in Canada?

So $44,999 grew to $54,999 and then $59,000. Markets at work. Free markets? Not so much. Distorted markets? Oh yeah.

The federal government wants everyone driving electric cars. It is a keystone in their plan to reach net zero greenhouse gas emissions by 2050. They’ve taken several steps to reach that goal. They’ve changed the drop dead cutoff for selling fossil-fuel-powered vehicles. It was 100 per cent by 2040. Now it’s 2035. But not all at once. They’re mandating carmakers to sell 20 per cent of all passenger vehicles as EVs by 2026, ratcheting up to 60 per cent by 2030 and all of ‘em by 2035.

Try as I might, I haven’t been able to find a definition of passenger vehicles. Just a distinction between whatever they are and medium and heavy-duty vehicles. So let’s assume it includes the things Canadians buy to get around: SUVs and pickup trucks.

Important? Double oh yeah. In 2020 only about 20 per cent of new vehicles registered in the country were passenger cars. The rest were SUVs and pickups. If you don’t want an SUV or pickup, it’s getting harder and harder to find something to buy. Things we used to call cars are an endangered species. Everyone wants something bigger, higher, with more cupholders. Anyone who thinks they may someday buy a sheet of plywood or gyprock at Home Depot wants a full-size pickup. 

To encourage Canadians to buy EVs, governments are offering bribes, er, rebates. The feds will cough up a maximum of $5,000 for qualifying EVs. Different provinces will provide more. B.C. will chip in $3,000, the least among the provinces but better than a stick in the eye.

To qualify, the base price of the vehicle needed to be under $45,000. The new program just raised that to $55,000 and tacked on another five grand to cover the higher costs of pickups and SUVs. Of course, few buyers want the base-level vehicle. So you can still get the rebates if you add on features and creature comforts that jack up the price by another 10 grand. 

Not surprisingly, most of the available EVs carry a base price of $44,999. Soon to be $54,999—$59,999 for SUVS and trucks.

Car companies aren’t stupid. The government set a target price and they’re happy to meet it... regardless of whether that would have been the price they sold the vehicles for absent the rebates. In effect, the governments set the price of new EVs with their rebate offer.

For example, the base price of a 2022 Hyundai Kona is $24,049. Pretty basic transportation. The base price of an electric Kona is $45,844. More or less the same car, different locomotive power. 

I know EV batteries are expensive. But once you subtract the cost of the gas Kona’s engine, transmission, drivetrain, cooling system, gas tank, gas pump, etc, and replace all that with batteries, electric motor(s) and an HVAC system, it stretches the imagination to think there’s a $21,000 premium in cost to build. 

But that’s the price distorted by the cutoff level for rebates.

Hyundai isn’t alone. Many EVs are priced just below that magic $45,000 number. Coincidence?

And while I’m totally in favour of moving away from fossil-fuel burning vehicles, does a national program to encourage people to buy over-priced EVs really make sense?

Not if you live in, say, Nova Scotia. According to 2018 figures, that province generates 60 per cent of its electricity by burning coal. You might as well be driving a coal-burning locomotive rather than an EV there. Alberta and Saskatchewan derive 91 per cent and 83 per cent of their electricity from fossil-fuel-generating plants. What’s the point of buying an EV there? 

B.C., Quebec and Ontario all score in the high 90-per-cent range in terms of zero emission power generation, albeit 60 per cent of Ontario’s is from nuclear, not that I have anything against splitting atoms.

But something is better than nothing, I hear you say. And I don’t disagree. But this program is all carrot and no stick. And the allure of the carrot is blunted by many vehicle purchasers who choose to buy EVs regardless of the rebates offered. Just because they believe they’re doing the right thing. Probably even more would if the prices of EVs weren’t artificially jacked up by rebates. It’ll be interesting to see what happens to prices when the $1.7 billion the federal government has committed to this program runs out or the programs ends in March 2025, whichever comes first. 

Of course, there will always be those who just can’t bring themselves to embrace EVs. Some have severe range anxiety just discussing the possibility. Blame it on Jack Kerouac. His 1957 book, On the Road, so romanticized long, meandering road trips—along with the development of the Interstate Highway System in the U.S. and to a lesser degree the Trans-Canada—many people still long for the open road, notwithstanding they largely choose to fly anywhere longer than a six-hour drive.

Personal choice is personal, though. And that’s where the missing stick might just be a better tool, or at least a useful adjunct. Getting increasing numbers of people to opt for EVs is only half the equation toward net zero. Encouraging people to not purchase gas guzzlers is the other, and larger half. 

Governments have punitive tax measures targeting luxury cars, not that people who spend $150,000 on a car really care that much. But there is no meaningful gas-guzzler tax in Canada. There is a miniscule $1,000-to-$4,000 tax, but that amount is a rounding error for most buyers. And so we reward people who buy vehicles that gulp gas as opposed to sipping it. Seems crazy. Crazier still when you wander around the day skier lots in town and see the size of what way too many people are driving up here for a day’s touristing. 

The carbon tax added to the price of gasoline isn’t much of a deterrent. Grouse all you want about the current price of gas but when you’re faced with a few bucks more every time you fill up it loses its impact. But tack 10 or 20 thousand bucks on to the purchase price of your new Canyonero and even the most spendthrift are likely to think twice. 

I’m resigned to buying an EV the next time I buy a car. I hope it’s a car though since most of what’s out there and most of what’s in the pipeline are electric SUVs. At a minimum though, I’d like to see the rebates offered offset by income from a guzzler tax. At least we’d be working both ends toward the ultimate goal.