Opinion: Will Canadians accept shortages of light trucks in 2030?

Canada should back off on the prohibition of ICE light trucks in 2035

Canadian transportation policy is now operating under a Zero Emissions Vehicle (ZEV) mandate that will soon have a binding effect as Canadians try to purchase their next vehicle, particularly light trucks.

A ZEV mandate requires sellers of light vehicles to sell a certain minimum of ZEVs (in effect, electric vehicles or EVs) in a year. The theory is that this minimum requirement will guarantee a market for ZEVs and thus encourage construction of ZEV manufacturing facilities and phase-out of internal combustion engine (ICE) vehicles.

The federal ZEV mandate proposed last December states that sales of light vehicles (passenger cars and light trucks) must be at least 20 per cent ZEVs in 2026, 60 per cent in 2030 and 100 per cent in 2035. British Columbia and Quebec have similar ZEV mandates.

The flip side to a ZEV mandate is a prohibition on the sale of ICE vehicles. A company has a steadily shrinking quota for the maximum number of ICE light vehicles it can sell in a year. If it sells more than its quota, it must either buy credits from another ZEV company, such as Tesla, or pay what is in effect a fine of $20,000 for each excess sale of an ICE vehicle.

Other jurisdictions have taken similar steps. In 2022, the EU mandated 100 per cent ZEVs by 2035. But it recently gave an exemption to ICE vehicles that use renewable fuels — very likely because, prodded by Germany, it realized there simply will not be enough ZEVs to supply all of demand in 2035.

The U.S. EPA recently announced stringent limits on auto tailpipe pollution, aiming to ensure that as many as two-thirds of all new passenger vehicle sales are EVs by 2032. In response, the Wall Street Journal observed that vehicle manufacturers have ceased to be free enterprise operators and have been converted to regulated entities acting as a government tool to moderate climate change. Some even speculate that the Republican party will make ZEV mandates an issue in the 2024 election campaign.

In 2022, light vehicle sales in Canada consisted of 300,000 passenger cars and 1,250,000 light trucks, including pickups, SUVs, vans and crossover vehicles. Canadians have shown they want to buy light trucks 80 per cent of the time and passenger cars only 20 per cent.

Of the 300,000 passenger cars sold in this country in 2022, 45,000 were EVs. If sales stay at 300,000, then to meet the 2035 target of 100 per cent EV sales, manufacturing capacity must increase by almost seven times. My forecast shows that this 2035 target can in fact be met, along with the interim targets before 2035. A description of that forecast is on the C.D. Howe website. It is a bottom-up forecast that examines future production from over 20 vehicle manufacturers.

By contrast, in 2022 only 55,000 of the 1.25 million light trucks sold were EVs. To fulfill the 100 per cent ZEV mandate and produce that many EV light trucks in 2035, EV manufacturing capacity would have to increase by almost 23 times. Just to meet the 20 per cent requirement for 2026 would require a four-fold increase in just four years.

At the moment, however, capacity to make EV light trucks is very limited. The factory for the Tesla Cybertruck is still under construction, while the electric version of the Ford F150, of which only 15,000 were produced last year, has a waiting time of at least a year. As a result, my forecast is that only 320,000 ZEV light trucks will be produced in 2035 — just 26 per cent of the total current demand of 1.25 million. This 74 per cent gap will create a serious shortage of light trucks.

The result is likely to be a large number — 930,000 in 2035, to be precise — of upset Canadians who want to buy a light truck but cannot do so. If you thought reaction to COVID mandates was vocal, wait until you see the reaction to the ZEV mandate when people realize they can’t buy the light truck they need in order to live their lives. Some have speculated there will be a flood of slightly used ICE light trucks imported from the United States into Canada. If not, prices will have to rise sharply to choke off excess demand.

The bottom line for Canadian governments? Follow the recent EU decision and back off on the prohibition of ICE light trucks in 2035.