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Prime Minister Mark Carney, recognizing the need to act decisively to support our auto sector, has scrapped Canada’s electric vehicle (EV) mandate. Or has he? Unfortunately close inspection shows that he merely rephrased the policy but the effect remains the same. Following the pattern of indecision and obfuscation set by his “Memorandum of Understanding” with Alberta, in which Carney sounded like he was greenlighting a new pipeline without actually doing so, the new auto policy repeals the mandate in name only.
Carney is withdrawing the so-called Electric Vehicle Availability Standard, which would have required 20 per cent of new cars sold in Canada in 2026 to be EVs, rising to 100 per cent by 2035. But he’s introducing onerous new greenhouse gas emission standards on gas-powered cars “to achieve a goal of 75% EV sales by 2035 and 90% EV sales by 2040.” So it’s still an EV mandate, just with a slightly slower implementation schedule.
The harm to Canada’s auto sector is the same. In a 2024 study published in the peer-reviewed Canadian Journal of Economics, I explained how a phased-in EV mandate would affect the economy. Automakers will temporarily make above-market profits (or “rents”) on gas-powered cars while continuing to lose money on EVs until the technology allows EV production costs to fall to levels that buyers are willing to pay. The reason for the rents on gas cars is that the mandate limits the number of units that can be sold each year below the level of consumer demand. This allows car companies to hike their prices, in the same way companies do when they engage in illegal price-fixing schemes, only instead of the scheme being illegal it’s imposed by government regulation. But the profits on gas cars aren’t enough to offset the losses on EVs or the losses due to the overall car market shrinking as prices rise.
Whether the industry survives in the long run depends on how quickly EV technology advances. At current loss rates, even under optimistic scenarios I found it unlikely the Canadian auto sector could survive the previous mandate schedule. I haven’t redone the calculations for the new policy but since it is so close to the original, I remain pessimistic.
Think about the problem from the point of view of an auto dealer. You expect to sell (say) 100 vehicles each year, and the typical mix is (say) 50 large cars (pickups and SUVs), 40 small sedans and 10 EVs. Most of your profits are on the large cars. The fleet you sell has a certain average (per-kilometer) CO2 emissions profile. But the government now requires a much lower emissions average. To meet the new rule, you must force most of the pickup and SUV buyers to choose a small sedan or an EV instead, to reach year-end sales numbers of, say, 5 per cent SUVs, 20 per cent sedans, and 75 per cent EVs. Advertising campaigns can’t achieve that change; instead, you will have to hike the price of SUVs (and sedans) until enough buyers change their plans. But at the higher prices, a lot of buyers will simply walk away, so you will get the sales mix right, but overall numbers will be down and most of the sales will be units that either have low margins or are sold at a loss.
But aren’t EVs the cars of the future? Maybe, but if so, let people figure that out for themselves. Ottawa has also announced billions in new subsidies for both the production and purchase of electric vehicles. It’s contradictory to call EVs a great economic opportunity while admitting that you have to throw money at buyers and sellers alike to get people interested in the product.
Canadians are justifiably angry that President Trump is trying to steal our auto manufacturing operations through hostile trade actions. But the real threat to our auto sector is homegrown. Forcing companies to specialize in a segment of the market that buyers aren’t interested in, while effectively banning the popular and profitable pickup and SUV options, would kill our auto sector even if the president was a Canada-friendly free trader.
On both autos and energy policy, Prime Minister Carney has proven he’s skilled at crafty word games, but that is not what we need. Canada faces a long-term decline in productivity and living standards due to a decade of bad policy choices. We need real policy reforms to save our key industries, not more dithering and misdirection.
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