One economist says that rebates have been a significant driver of zero-emission vehicles (ZEVs) sales in Canada, but the number of purchases could fall going forward with rebates scheduled to expire.
Likeleli Seitlheko, an economist with TD Economics, released a report on the role of rebates in the adoption of zero-emission vehicles, such as battery-electric, plug-in hybrid electric and hydrogen fuel cell vehicles.
The report notes that adoption of ZEVs has been growing in Canada, mostly driven by sales in B.C. and Quebec where years of “consistent government support” has bolstered the market.
“In particular, provincial and federal rebates for consumers buying or leasing zero-emission vehicles have been instrumental in shoring up consumer demand,” the report said.
“As zero-emission vehicles have higher sticker prices than conventional vehicles, rebates continue to be necessary for helping the market to grow in line with the escalating sales targets that are set to reach 100 per cent by 2035.”
Seitlheko also highlighted that a trend of weakening ZEV sales in the U.K. and Germany after eliminating subsidies “bring into question” plans to phase out provincial and federal rebate programs in Canada over the next two years.
According to the report, ZEV sales have been increasing over recent years, from nearly zero a few years ago to 12 per cent of new light-duty vehicle registrations during the first half of this year. ZEV sales were notably higher in Quebec and B.C., coming in at 25 per cent and 20 per cent respectively during the same time period.
The contrast between B.C. and Quebec compared to the rest of the country, Seitlheko said, is due to consistent government support in the form of rebates to consumers for purchasing or leasing ZEVs. Additionally, the increased uptake in those regions is due to regulations requiring automotive makers to sell a minimum number of ZEVs in the domestic market.
“As many of the rebate programs are expected to end in 2025 and 2026, ZEV mandates will be the main tool used by governments to encourage ZEV adoption, including the federal standard which will be applicable starting with the 2026 vehicle model year,” the report reads.
“However, it is questionable if the mandates will be sufficient for helping the country achieve the ZEV sales targets set for this decade. This is because ZEVs continue to be more expensive to buy/lease than comparable gasoline and diesel vehicles.”
When a grant was eliminated for private car purchasers in the U.K. in 2022, ZEV sales growth and market share were driven instead by fleets and businesses who still had access to subsidies, while sales to individuals fell, according to the report.
In Germany, the report said an initial phase of subsidy removal on plug-in hybrids at the beginning of 2023 led to a 50 per cent decrease in sales for those types of vehicles that year, contributing to a 16 per cent decrease in total ZEV sales.
“It is necessary for governments in Canada to rethink plans to end the subsidies and perhaps restructure the programs to focus more on supporting lower-income individuals,” Seitlheko said.