Pathways to 2030

Emissions are 10% lower than their peak levels scaled in 2019.

Around 100 new models, aimed at different segments, could entice more consumers to get behind EVs.

The Year In Climate Policy

One in 10 passenger cars sold in Canada was an electric vehicle in 2023. EVs now make up 2% of Canada’s car stock.

New federal targets finalized in 2023 require EVs to make up 20% of all car sales by 2026, and 60% by 2030.

Clean Fuel Regulations, aimed at reducing carbon intensity of liquid fuels by 15%, came into effect on Canada Day.

Industry, including Stellantis and Volkswagen, has committed $27 billion since 2022 to build EV and battery supply chains along the Quebec-Ontario-Michigan corridor.

Tesla cut the price of its Model 3, the most popular EV car in Canada, to $56,000—the average price of a conventional car—amid rising competition.

Canada Lags Behind G7 Peers

Share of EV Sales

Source: Haver, BloombergNEF, RBC Climate Action Institute

Three Things To Watch In 2024

Volkswagen’s electric vehicle battery cell gigafactory in St. Thomas, Ontario, to break ground in 2024.

Chevrolet to launch first-ever Silverado EV truck this summer in an increasingly crowded market segment featuring Ford F-150 Lightning, GMC Hummer EV and Tesla’s Cybertruck.

EU will require ship operators to monitor and report their emissions and surrender allowances for every ton of CO2e they emit.

CASE STUDY

A Hydrogen ‘Wow’ Moment

College of the North Atlantic
St. John’s, Newfoundland & Labrador

Deep Dive

Electric Vehicles

  1. EVs account for 2% of cars on Canadian roads. Internal combustion engine cars remain dominant—and make up half of the country’s overall transportation emissions.
  2. EV sales have more than tripled since 2019. Still, stock needs to grow an estimated tenfold to 4.6 million by 2030.
  3. Industry has invested US$100-billion. Companies are building battery and EV manufacturing supply chains across North America to meet anticipated demand.
  4. Consumers still suffer from range anxiety. But significant strides are being made to alleviate concerns around charging networks.
  5. More targeted policies will boost EV sales. Focusing subsidies on price-sensitive segment of the population could boost adoption.

We love our cars. Last year, 13 million Canadians took to the road to and from work each weekday, while use of public transport is now lower than it was pre-pandemic1. Work-from-home trends during the pandemic briefly altered car-loving Canadians’ behaviour and dented transport emissions by 16% from their 2019 peak. But auto emissions are inching up again as workers stream back into the office, usually in gas-burning vehicles. Internal combustion engines (ICE) still account for 98% of all passenger cars and half the country’s transportation emissions, which in turn make up 22% of Canada’s footprint.

As such, the EV revolution may need to accelerate. Driven by governments, rapid adoption of EVs—that include plug-in hybrids—is emerging as a scalable climate solution. Passenger EV sales have more than tripled since 2019, accounting now for every 10th vehicle sold. Canadians are also more accepting of EVs—for design, convenience or social statements as well as climate concerns—with consumer sentiment pointing to at least a third saying they would consider buying an EV as their next purchase2. There are now 500,000 zero-emission vehicles on Canadian roads—an impressive figure, but it needs to grow to 4.6 million to meet the federal target of EVs making up 60% of passenger auto sales by 2030.

Government subsidies and policies have driven adoption to date and levelled the playing field for EVs. Early adopters Quebec and British Columbia have been offering meaningful incentives since 2012 and 2015, respectively, that have led to almost half of EVs in Canada registered in Quebec and a quarter in British Columbia. The two province’s EV sales targets also accelerated adoption. Meanwhile, federal subsidies rolled out in 2019 accelerated the momentum, providing $1.5 billion to help put more than a quarter of a million zero-emission vehicles on the road3. Combined federal and provincial efforts have turned EVs from a novelty to an everyday sighting on Canadian roads.

Buyers are also getting more comfortable with EVs as the cost of owning one came down considerably in 2023, and price parity with cars with ICE appears likely this decade4.

EV Sales Have Jumped...

EV share of total vehicle sales, latest: Q3 2023

Source: Statistics Canada, BNEF, RBC Climate Action Institute

But It's Only The Beginning

EV share of total vehicle sales

Source: Statistics Canada, BNEF, RBC Climate Action Institute

EV Subsidies Are Closing The Price Gap With ICE Cars

Subsidies as a share of an average EV price in 2022

Source: BNEF, RBC Climate Action Institute

Purchases Without Subsidies Are Gaining Traction

Cumulative EV sales since June 2019

Source: Transport Canada, Statistics Canada, BloombergNEF, RBC Climate Action Institute analysis | *RBC estimates

Industry Shifts Gear

Automakers are shifting gears by committing to scale EV production and offer more choice.

While pure-play EV brands—Tesla, BYD and Li Auto—dominate the market, legacy carmakers are catching up. North America’s most popular models including Ford’s F-150, Fiat’s Ram, Stellantis’ Jeep and General Motor’s Cadillac Escalade are going electric to get ahead of Tesla’s Cybertruck. At the higher end, Rolls Royce and Bentley are also making the switch.

Carmakers representing a third of the global car market have committed to EV-only sales by 20405. That’s backed by nearly US$100 billion in investment plans across the U.S. and Canada to build battery and EV manufacturing supply chains6.

Production cost curves are also bending as the segment matures. The cost of building batteries, which make up a third of EV costs, has fallen 24% since 2019. Lithium-ion battery prices, projected to fall by half, add further impetus to the price-parity argument before the end of the decade.

There’s also more choice now. Globally, carmakers have more than 500 EV models on offer—twice what was available in the pre-pandemic era. Canadian consumers have a roster of up to 100 EV models to choose from across a spectrum of price ranges7.

In 2023, Tesla initiated a $15,000 price cut for its mid-range Model Y, triggering a price war amid rising competition. The company also slashed prices for Model 3—popular among Canadian drivers—by $6,000 to stay ahead of a cavalcade of new rivals such as the Hyundai Ioniq 5 and Volkswagen ID.4.

Model 3 is now available for $56,000—the average price of a new gas-powered car in Canada. And that does not account for a $5,000 federal incentive (even more with provincial incentives in most regions) or the estimated $5,000 in gas savings over three years of driving.

Range Anxiety

Two critical concerns have been top-of-mind for Canadians as EVs gain popularity, especially when embarking on a cross-country trip—range anxiety and the availability of charging infrastructure. Significant strides have been made to address both concerns.

Driving ranges have increased significantly with an average EV in North America offering around 450 kilometres on a single charge—enough for a Toronto-to-Ottawa or Calgary-to-Edmonton trip with battery to spare. Chevrolet Bolt EV, for example, priced at $42,000 net of taxes, fees and incentives offers over 400km of driving range.

Meanwhile, anxiety around charging infrastructure seems to primarily stem from a lack of consumer awareness. Canada has 11,000 public charging locations—as many as gas stations. Still, EV charging ports need to ramp up from 25,000 currently to almost 200,000 ports by 2030 with Ottawa financially committed to help install 84,500 chargers in that timeframe. Only one in 10 Canadian commuters drives longer than 70 kilometers a day to and back from work8—sufficient with a single charge each week. Public charging availability, reliability, and faster charging times, however, will be essential to set Canadians’ minds at ease for long drives.

No Shortage Of Charging Network

Source: Statistics Canada, Natural Resources Canada, RBC Climate Action Institute analysis

The federal government has invested $1.4 billion to support public charging networks since 2016. Norway’s experience suggests such investments during early days of adoption tend to have a greater impact on EV adoption than direct subsidies for vehicle purchases9. Federal EV sales targets will also play a major role in creating a certainty in charging demand for the industry to expand. Contrary to consumer perceptions, charging infrastructure has outpaced EV adoption in most provinces, while Quebec and British Columbia are within Ottawa's recommended charging network requirements10. Unlike Europe, Canada’s housing landscape also offers a unique advantage in the shift to EVs. With half of its housing stock consisting of single detached homes, Canadians can plug EVs into electric sockets at home. Home charging will ease the pressure on public infrastructure and provide a convenient option for EV owners.

Still, there is a long way to go before charging infrastructure concerns are fully addressed, especially as more Canadians move into multi-unit residential buildings. Retrofitting buildings with EV charging capabilities remains an expensive and complex process. Continued expansion of public charging infrastructure will be a key in densely populated cities. Rural Canada is also at risk of being left behind as demand may not be sufficient for the development of private charging networks.

The Big Push

The current pace of subsidy uptake to meet the 2030 EV sales target of 60% could push the cost to the federal government to more than $5 billion, assuming sole reliance on subsidies, according to our estimates. That’s nearly twice what Canada is already spending on EVs. Combined federal and provincial supports range from $5,000 to 12,000 per EV—comparable to some of the most expensive, albeit evolving, abatement technologies such as carbon capture and direct air capture.

Policy now needs to be directed towards more price sensitive segments of the population to reach mass EV adoption. Lower income consumers can be two to three times more responsive to price changes due to subsidies11. B.C. is leading the way as the first province to incorporate income-level requirements for eligibility. The federal government’s recently finalized EV sales mandate is another development aimed at accelerating adoption and expanding affordable options for consumers.

Policy uncertainty hovering over the horizon, however, could stall EV momentum. A change in political leadership in the U.S. and Canada could reverse federal mandates aimed at driving production changes and consumer sales. The auto industry is also wary of pivoting too far to EVs in case it’s caught off-guard by shifting political winds, consumer confidence or technological challenges. That, in turn, could delay the ramp up of EV production.

RBC Capital Markets expects a robust 18% growth in global EV sales in 2024, but global demand is showing some signs of sputtering. Tesla and Ford recently warned of slower sales growth in 2024 as consumers remain hesitant. Meanwhile, the Chinese government recently raised overcapacity concerns among its EV makers amid tepid global demand.

Buyers Tapped Incentives To Buy Higher Priced EVs

Share of EV sales purchased with the federal incentives by price level*

Source: Transport Canada, Autotrader.ca, RBC Climate Action Institute | *Vehicle model/year MSRP mid-point

A halt in EV subsidies in Germany, and U.S. IRA tweaks that stripped the subsidy eligibility off half the EV models, could hurt global sales, too. These headwinds could just be short-term blips for a growing sector, or trigger a longer-term slide.

CLIMATE ACTION HERO

Arc Motors

Peterborough-based Sloane Paul is combining her passion for classic cars to the future of transportation. The founder and CEO of Arc Motor Company says she is among the first in the market. Sloane’s latest project is electrifying a 74’ Ford Bronco, outfitted with new batteries from wrecked cars to drive down costs—and emissions.