BMO economists say gasoline demand in Canada could peak this decade as sales of electric and hybrid vehicles trend upward.
Sales of battery electric vehicles (BEVs), plug-in hybrid vehicles (PHEVs) and hybrid vehicles fell slightly in the first quarter of 2024 amid declines in nearly every category, regardless of fuel type, according to Statistics Canada.But the overall trend points to a “major shift toward all three combinations” of vehicles, said Eric Johnson, senior economist at BMO Capital Markets. Yahoo Finance Canada.
“Anyone who thinks this product category will shrink or disappear over the next 12 months is certainly not looking at the data very carefully,” he said.
Johnson said the growing market share of BEVs, PHEVs and hybrids, along with the trend towards improved fuel economy for gasoline vehicles, means that the peak in road-based gasoline demand in Canada “is something we’re probably going to see within this decade, not 20 years from now.”
BEVs, PHEVs and hybrids account for approximately 20% of the total market, up from a peak of 15% in Q1 2023. Year-over-year, total vehicle sales increased by more than 50% compared to Q1 2023.
Johnson said he expects the market share of electric and hybrid vehicles to continue to grow, albeit at a slower and less consistent pace, driven mainly by price, especially in the current economic climate.
“You’re not going to see the same market acceleration that you’ve seen over the past few years,” he said. “Obviously, this product segment is at a point now. It was a niche product before the pandemic, but now there are mainstream markets, like British Columbia and Quebec, where almost one in three new cars purchased is an alternative fuel vehicle. Naturally, when you have that many cars on the market, growth is only going to slow.”
Johnson said that until more affordable EV models come on the market, growth will likely be slow as many Canadians face rising mortgage renewal rates and other cost-of-living challenges. While the fuel savings could be significant, the upfront costs of a new vehicle and high interest rates on financing will be a barrier for many, he added.
Johnson said Canada’s response to recent tariffs imposed in the United States and Europe on Chinese-made EVs will also determine the pace of growth.
John MacFarlane is a senior reporter for Yahoo Finance Canada. Follow him on Twitter. Follow.
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