The transition to electric vehicles carries existential risks for North American automakers. They remain light-years behind Asian, and especially Chinese, competitors that dominate supply chains for critical minerals and batteries.Jae C. Hong/The Associated Press
The top-selling “cars” in Canada during the first three quarters of this year were not cars at all. The Ford F-Series, Ram, Chevrolet Silverado and GMC Sierra pickups accounted for four of the five best-selling models. The Toyota RAV4 SUV was the only non-truck to make the top five.
The story was similar south of the border, where pickups and SUVs have dominated auto sales this year, just as they have for the past decade. Americans love their trucks, and North American automakers have done nothing to discourage them.
Indeed, the automakers owe their resurgence after the 2008-09 financial crisis to North American consumers’ size fetish. Though General Motors, Ford and Stellantis (of which Chrysler is a part) insist they will one day offer an all-electric fleet, they could not undertake this transition without the hefty profits they make up on gas-powered pickups and SUVs.
“Profits from these vehicles are literally funding our future,” GM president Mark Reuss told investors last month, as the Detroit-based auto maker said it aims to turn a profit on electric vehicles by 2025. To get there, GM needs to reduce battery costs to below US$70 per kilowatt-hour, or by more than half the current level. Only, costs have been rising as demand grows for the lithium, nickel and cobalt needed to build batteries.
The transition to electric vehicles carries existential risks for North American automakers. They remain light-years behind Asian, and especially Chinese, competitors that dominate supply chains for critical minerals and batteries. Despite Ottawa’s boast of having attracted “historic investments” in Canada’s EV ecosystem in recent years, amid similar efforts by Washington to boost U.S. production, nothing done here compares to the pace and scale of China’s moves to extend its advantage.
In unveiling Ottawa’s sales targets for zero-emission vehicles, or ZEVs, federal Environment Minister Steven Guilbeault this week insisted the move would serve to increase the supply of electric vehicles, leading to lower prices. But in mandating that ZEVs account for 20 per cent of Canadian vehicle sales by 2026, 60 per cent in 2030 and 100 per cent in 2035, Ottawa is also increasing Canada’s dependence on China just as the West is seeking to “decouple” from Beijing amid rising geopolitical tensions.
You cannot build an EV battery that does not contain mainly Chinese components. Neither Ottawa’s modest Critical Minerals Strategy, nor Washington’s more ambitious Inflation Reduction Act, can change that any time soon, if ever. That is why betting on EVs involves not just economic risks; it also raises national security concerns.
The imperatives of climate change make the switch to EVs appear virtuous. But a global EV supply chain dominated by Chinese battery components – assembled from minerals obtained under dubious conditions in developing countries and refined mainly using coal-based power – is not necessarily a win for the planet.
“A worst-case scenario would see continued reliance on China for critical minerals and their derivative products,” a recent Brookings Institution study concluded. “This would expose the energy transition to major geopolitical risks, as well as increase the risk that sourcing of critical minerals will cause or contribute to serious social or environmental harms.”
An “unofficial” cost-benefit analysis released by Ottawa estimates the new ZEV targets would generate $28.6-billion in net benefits and help Canada meet its greenhouse gas reduction goals. The analysis concludes that $24.5-billion in additional ZEV and home charger costs (compared to internal combustion engine, or ICE, vehicles) would be offset by $33.9-billion in energy-cost savings. The study pegs the value of reduced GHG at $19.2-billion in “avoided global damages.”
The analysis also assumes that the move to ZEVs will have only a marginal impact on electricity demand, and hence power prices. That is at best debatable. A big increase in electricity prices would wipe out any net economic benefit from the switch to EVs.
The North American automakers warned Ottawa against adopting ZEV targets. Rather, they asked Canada to continue to follow the U.S. Environmental Protection Agency’s fuel economy standards for ICE vehicles, stating that “the emission standards are the most effective way to meet the GHG and ZEV targets while protecting industry competitiveness in an integrated North American auto market.”
The automakers might have been more persuasive if they had steered consumers toward smaller and more fuel-efficient ICE vehicles in recent years. Instead, they doubled-down on pickups and SUVs to maximize profits despite the environmental damage. They will have no one to blame but themselves if ZEV mandates end up threatening their survival.
Editor’s note: (Dec. 23, 2022): A previous version of this column stated that Canada's zero-emission vehicle targets could create $33.9-million in energy-cost savings from 2026 to 2050; they are in fact estimated to provide $33.9-billion in savings over that time.