Unplugging Canada’s Electric Vehicle Incentives: Will EVs Survive Here?

Over the past few years, Canadian car shoppers have increasingly been drawn to electrified vehicles. The lower running costs, the environmental benefits, and the purchase incentives handed out by both federal and provincial governments have all made electrified vehicles more popular.

While these benefits — and the perception of a smoother, more efficient driving experience — underscore the potential and promise of EV technology, as the Canadian government's incentive program ends and provincial rebate payouts in Quebec are reduced, the once-booming electric vehicle (EV) market is contracting. This situation raises a critical question: How will the industry achieve Canada's zero-emission vehicle (ZEV) sales mandate, a key pillar of our environmental and economic future, without incentives?

EV Rebates Drive EV Sales

Before we delve further, it's crucial to grasp the Canadian federal government's ZEV mandate. Finalized in December 2023, it's part of our country's overarching Emissions Reduction Plan, which aims to reduce pollution from the transportation sector and contribute to net-zero emissions by 2050. Specifically, the ZEV mandate requires that 100 per cent of new passenger cars, SUVs, and light trucks sold here emit no tailpipe emissions by 2035. The short-term target is at least 20 per cent by 2026 and 60 per cent by 2030.

ZEVs include battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and hydrogen fuel cell electric vehicles (FCEVs). Traditional gasoline-electric hybrids that can only be driven short distances on electricity alone, or not at all, do not qualify.

Although seemingly ambitious, meeting the ZEV mandate appeared feasible based on the recent growth in ZEV sales. According to a recent report from the automotive industry analysts at S&P Global, the market share of ZEVs in Canada rose to 15.4 per cent by the end of 2024, up from 10.7 per cent for 2023. Quebec car buyers were a significant driving force. The province boasts the highest penetration rate at 32.9 per cent, representing 54 per cent of all ZEV registrations in the country. Plus, the ZEV penetration rate soared to 42 per cent, with the province now accounting for 60 per cent of ZEV registrations nationwide. The last quarter of 2024 delivered even more impressive results. ZEVs accounted for approximately one of every five vehicles sold in Canada during Q4 2024, with the national penetration rate climbing to 18.9 per cent, up from 16.5 per cent in Q3 2024.

ZEV sales are also catching up with fossil-fuel vehicles from larger automakers. Sales of electrified vehicles (EVs, PHEVs, and hybrids) for Toyota Canada in 2024 were up 17.7 per cent year-over-year, representing 49.2 per cent of the company's overall vehicle sales in 2024.

Can the Industry Meet the ZEV Mandate Without Incentives?

Last year's EV sales surge certainly underscores the effectiveness of government policies encouraging consumers to transition to EVs, but also fuelled by consumers rushing to secure incentives while they can. Quebec's $7,000 rebate dropped to $4,000 on January 1, 2025, and falls to $2,000 in 2026 before being eliminated in 2027. Unsurprisingly, as of January 2025, preliminary data reveals a concerning trend: ZEV registrations in Quebec have begun to decline, with a staggering 65 per cent decrease in BEV volume. This suggests that incentives targeting price-sensitive consumers heavily influenced the initial demand.

And it’s a similar story in other countries as well. In New Zealand, EV incentives pushed up sales by 20 per cent, but the program ended, and EV sales “fell off a cliff,” according to a report from CBC. In Germany, EV sales dropped 27 per cent in the year after subsidies ended.

AutoTrader research supports this EV buying trend. While search interest in EVs was up 9 per cent last year, purchase consideration was down for the second year. Over half of non-EV owners considered an EV in early 2023, but that number fell to 46 per cent in 2024. Further eating into EV sales are traditional hybrid vehicles. Following a significant increase in hybrid vehicle listings, 62 per cent of consumers who said they intend to buy an EV are now considering a more affordable hybrid and 60 per cent say they're considering a plug-in hybrid.

Because these incentives may have reached their peak effectiveness, the sustainability of ZEV adoption remains uncertain. Are there any immediate opportunities for the automakers, such as manufacturer rebates or adding more ZEV availability to boost EV sales?

"I don't think the manufacturers should provide further rebates," said Canadian automotive industry consultant Brian Murphy, Managing Director of Vehicle Vision Advisory Services. "Most automakers are losing money on EVs because of the steep research and development costs, which they have now amortized over a lot fewer units than expected. In the long term, these kinds of behaviour in the industry will not be in the consumer's best interests."

Affordability Has Become a Priority With Car Buyers

Current economic pressures are affecting Canadians, who must consider affordability, reliability, and utility when assembling their car-buying shortlist. AutoTrader research shows that price is a big reason many Canadians wouldn't consider an EV, as they're typically more expensive than their gas-powered counterparts.

"Car manufacturers would love to sell a $30,000 EV, but these companies aren't charities. The low-cost EV would have great appeal, but it is tough from a profit standpoint," added Murphy.

While plenty of new EVs are coming this year, a few more affordable options, such as the Chevrolet Bolt and Kia Soul EV, have been discontinued. However, some affordable EVs are still available. As of early 2025, the $39,995 Fiat 500e is the least expensive new EV in Canada. By far the smallest EV available, it also has the least range, with an estimated 227 kilometres. An upside of the smaller battery is that the 500e charges up to 80 per cent quickly in just 35 minutes.

Given consumer behaviour in the first few months of 2025 with reduced or no rebates, can the industry hope to hit federal and provincial ZEV sales targets without government incentives to lower the upfront cost of ZEVs?

Looking at Norway as a success story for EV adoption, EV sales represented 89 per cent of the country's new car sales in 2024. Experts say that incentives played a considerable role in that success, but other perks like free parking, access to bus lanes, reduced tolls, right-to-charge legislation, the support of government regardless of party affiliation, and more were also crucial to the country’s high EV adoption rates. Still, it was a process that started 30 years ago.

Murphy doesn't believe the targets are attainable in Canada without massive changes.

"I think the federal and provincial governments need to completely rethink their EV strategy with more consultation with the companies that make the EVs with real conversations about what's attainable. For example, given the geographic reality of Canadians' longer distances, more aggressive investment in EV charging infrastructure would be more beneficial if they want people to buy more EVs."