High interest rates and stubborn inflation could put the brakes on electric and other zero-emission vehicle sales in Canada, jeopardizing Ottawa's plan to eliminate conventional light-duty auto purchases by 2035, according to Scotiabank.
Statistics Canada data show zero-emission vehicles (ZEVs) grabbed a nearly double-digit share (9.6 per cent) of new light-duty vehicle registrations in the fourth quarter of 2022. That's up from 6.2 per cent the previous year.
The federal government wants ZEVs to account for 100 per cent of new purchases in this category by 2035, with interim targets of at least 20 per cent by 2026, and at least 60 per cent by 2030. Ottawa defines ZEVs as those that can run without producing tailpipe emissions, such as battery-electric, plug-in hybrid electric, and hydrogen fuel-cell vehicles.
"The market still has a long way to go in meeting the federal interim sales target of ZEVs accounting for at least 20 per cent," Scotiabank economist John Fanjoy wrote in research published earlier this week.
"As Canadians deal with high interest rates and still high inflation at the margins, the decision to purchase an EV over the alternative of buying a gas car, which is cheaper on average, or put off the purchase altogether, may pose headwinds to EV sales in the near term."
On top of high inflation and steeper borrowing costs, Fanjoy notes limited inventory and long wait times are likely also putting off some potential purchases.
In Ontario, Canada's largest vehicle market, EVs made up 8.1 per cent of fourth-quarter registrations, and 6.5 per cent in 2022, up from 3.1 per cent in 2021.
Quebec saw EVs grab a larger 13.9 per cent share of its market in Q4, and 12.3 per cent in 2022, up from 8.9 per cent in 2021. Fanjoy notes Quebec's larger rebates for EV purchases, and the province's plans to raise EV sales targets.
British Columbia led Canadian provinces and territories at the end of 2022, with EVs accounting for 18.6 per cent of new registrations in Q4, and 16.2 per cent for the full year.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.