Inflation, high interest rates biggest headwinds facing EVs in 2024

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Inflation and elevated interest rates continue to be the biggest challenges facing the auto sector in 2024, says one industry expert, and that could hurt the transition to electric vehicles.

“A vehicle purchase is the second-largest purchase that a household makes after a home,” Brian Kingston, chief executive of the Canadian Vehicle Manufacturers’ Association, said in a recent interview with the Financial Post’s Larysa Harapyn. “If financing rates remain elevated, that will be a challenge for Canadians as they consider a new vehicle and they may push off purchasing a new vehicle for a few years.”

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Kingston said the economic headwinds will also hit the industry’s transition to electrification. He believes the federal government’s target of 100 per cent zero-emissions vehicle sales by 2035 is not achievable based on the current supports that are available to Canadians.

The price gap between an electric vehicle (EV) and a gas-powered vehicle is a big part of the problem. The difference in cost will narrow over time, but he said it won’t be enough to help people make the switch in the current inflationary environment.

“Electric vehicles are more expensive,” he said. “We need stronger incentives to close the price gap.”

Public charging infrastructure is another part of the problem. Kingston said Ottawa’s EV target will require 17 times the charging infrastructure that is now available over the next 11 years.

Still, EV production has been ramping up as automakers make investments with government support. The Canadian market had 77 EV models in 2023 compared to three in 2012. Kingston said he anticipates 40 more models will be available to Canadians in 2024.

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“You’ll be able to find an EV in every segment that you wish,” he said. “But if you don’t address those barriers, it still will be a challenge to get more Canadians moving into this new technology.”

Kingston sees critical minerals, which are crucial in the production of EV batteries, as “the biggest economic opportunity for Canada.”

Canada has already secured major investments into EV assembly and battery plants, including multi-billion-dollar deals with Stellantis NV, LG Energy Solution Ltd., Volkswagen AG and Northvolt AB in 2023.

“The footprint has been established,” Kingston said. “Now the question is, can (Canada) become a supplier of choice for critical minerals?”

He said it’s “well understood” that Canada has all the minerals, but it doesn’t have a clear path to moving those minerals from the mines to the market.

Kingston added that approving new mines and building out transportation infrastructure could help Canada feed the North American battery supply chain. But getting usurped by another country is “always a risk,” he warned.

“It’s very important that Canada ties its environmental objectives … to its economic outcomes,” he said. “This industry is hugely important to Canada as we make this transition.”

• Email: novid@postmedia.com

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