EV sales have slowed. Do massive subsidies still make sense?

Enormous investments in EV technology shook the automotive industry in both Canada and the U.S. this week. Honda promised to spend $15 billion in Ontario on Thursday morning. Toyota unveiled new investments in Indiana that afternoon, bringing its total spending on EVs in that state to $8 billion US.

“In Canada, our target is that 100 per cent of all light duty cars and passenger truck sales be zero emission by 2035,” said Prime Minister Justin Trudeau at the Honda announcement in Alliston, Ont. “As a great Canadian once said, that is where the puck is going and that is where we’re going to be.”

But the surge in investment comes as the underlying EV industry remains at a crossroads. Growth forecasts have plateaued, charging infrastructure has not kept pace and electric vehicle prices have pushed the cars out of reach of many consumers.

For evidence of that look no further than Tesla. 

WATCH: ‘Historic’ Honda EV investment will boost economy for generations, says Trudeau 

Prime Minister Justin Trudeau praised Honda’s $15-billion EV investment as an example of ‘Canada building the kinds of solutions the world needs’ before taking aim at his rivals, and suggested the announcement would not have happened under a Conservative government.

The EV giant’s quarterly earnings this week showed a nine per cent drop in first-quarter revenue. That’s the biggest decline Tesla has reported since 2012 and came as a surprise to even pessimistic analysts.

In an earnings call on Tuesday, Tesla’s mercurial CEO Elon Musk said companies that are scaling back on EV production are getting it wrong.

EVs will eventually dominate the market, Elon Musk says

“The EV adoption rate globally is under pressure and a lot of other manufacturers are pulling back on EVs and pursuing plug-in hybrids instead. We believe this is not the right strategy and electric vehicles will ultimately dominate the market,” he said.

Musk helped stem stock losses with a promise that the company will begin production of a new, affordable EV model sooner than expected.

Tesla had initially said it would start production on its long awaited $25,000 US model near the end of next year. Musk now says the company plans to start production in “early 2025, if not late this year.”

But the rough patch of news has not been limited to Tesla.

Ford now says its electric vehicle unit lost $1.3 billion US in the first quarter alone. The company only sold 10,000 vehicles in that period. In other words, Ford lost about $132,000 US for every EV it sold in the first three months of the year.

The company had already announced it would make less than half the electric pickup trucks it had promised.

That came on the heels of an announcement from General Motors that it would cut production of its EVs, citing slowing demand.

In its own earnings call on Thursday, the car-rental giant Hertz reported losses that were almost three times worse than expected as it tries to speed up the process of offloading electric vehicles in its fleet.

An image of the electric Ford F-150 pick up truck being unveiled on stage.
The Ford F-150 Lightning is unveiled on May 19, 2021, in Dearborn, Mich. Sales of the truck have been less than what Ford anticipated. (Carlos Osorio/The Associated Press)

Hertz made an enormous bet on electric vehicles in 2021. It ordered 100,000 Teslas but eventually conceded they led to lower rental rates and higher costs.

Hertz officials say the company only actually purchased a fraction of that number. But it’s now trying to sell about 30,000 electric cars by the end of this year.

EVs traditionally have higher repair costs, but the rental car company was clobbered on re-sale values after Tesla cut prices last year.

So, do massive subsidies and tax credits for the EV industry make sense when the industry itself seems to be struggling?

Auto industry experts say there’s a crucial distinction between slowing rates of growth and outright decline.

EV sales are still projected to grow over the next few years. Just not by as much as they have in the past.

‘Chicken and the egg’ situation for EV uptake

“The entire industry agrees we are going to get to a place where we are at zero emissions. The only debate is how long it’s going to take,” said Flavio Volpe, head of Canada’s Automotive Parts Manufacturers’ Association.

That timeline depends on several key factors. But price and charging infrastructure are among the most important.

Electric vehicles are still considerably more expensive than traditional alternatives. Meanwhile, range anxiety and a lack of charging infrastructure make some consumers think twice about buying electric. 

Volpe was asked whether investing in plants like Honda’s facility in Alliston, Ont., makes sense before consumer demand is fully realized.

WATCH: Electric vehicles are becoming easier to find in Canada, but not easier to afford: 

Electric vehicles are becoming easier to find in Canada, but not easier to afford

Electric vehicles are becoming easier to find at Canadian auto dealers, but they are still more expensive than most gas-powered vehicles. EV experts encourage drivers to consider fuel savings and provincial incentives as they mull over their next car purchase.

“A lot of this is chicken and the egg,” Volpe told CBC Radio’s Metro Morning. “You’ve got to get companies like Honda, like Stellantis and Ford to commit to making these vehicles in partnership with provinces and the country.”

As they build up capacity, Volpe says prices should come down. As prices come down, more people will buy EVs and as they do, more charging stations will be built. 

But experts say everyone, from consumers to manufacturers to governments, need to know EV adoption rates will not move in a single sweeping line toward their targets.

Most change happens in fits and spurts — that’s probably the road ahead for EVs as well.

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