Canada has made a bold move to start the production of electric automobiles, and I fully support the move on the basis of using the national zero-emission vehicle mandate, regardless of the existence of negative impacts. This essay focusses on the article, “Canada gambles with electric car investment in Oakville with Ford,” written by Heather Scoffield and dated October 10, 2020. The economic policy being addressed in the article is unfavorable market conditions for electric car manufacturing industries in Canada. The outline of this article involves the description of economic rationale of the identified policy, provide options that can be used to resolve the issue, and holistically describe these options and finally recommend the best option with justifiable reasons.
Background
According to Heather Scoffield, Canada, through her Minister of Innovation, Science and Industry, Navdeep Bains went out on an objective search for electric car manufacturers to convince them to enter the Canadian market space. Canada is desperate to revive its automotive industries after losing five major investors in recent times. Many companies rejected the offer claiming that Canada had an unconducive market environment. Many of these car manufacturers claim that Canada has strict reg9ulator measures, incentives, and poor consumer awareness initiatives. These citings have made the country lose 30% of its vehicle production to Mexico and the US alongside making a net loss of 5 car assembly plants. With the pressure mounting for most countries, including Canada, to make money through the automobile industry while being environmentally friendly, the Canadian government is worried because it is a matter of time before the world fully switches to the use of electric cars. Canada is one of the key players in automobile production, and move toward revamping the production of electric cars is almost inevitable if the country wants to compete favorably in the future automobile market and industry. Luckily, the minister managed to strike a deal Dean Stoneley, Ford’s CEO in Canada while they both attended an auto show in Toronto. The Canadian government accepted to invest a whopping $600 million, which equates to 30% of the total investment. This figure is 10% higher than the normal investment figure that the Canadian government always uses when making any investment. The government did this intending to attract other global industrial partners into its market space and appears to be an economic gamble because the results are yet to be seen.
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Economic Rationale
Canada has decided to invest big in the automotive industry because it understands that the world is moving the electric way. The industrial sector understands that if it sticks to the production of traditional fuel-powered engines, it will lose business tomorrow because fuel engines are going to be phased out sooner or later. Many individuals are going to lose jobs in the future, which will translate to a strained economy where the employment percentage will go up. Besides, failure to revamp electric car production would make Canada lose revenue sourced from taxing various electric vehicle manufacturing companies and a lower GDP too.
Discussion
Canada can use several policy options to attract not only Ford but also other electric car manufacturers into the country. The most straightforward policy option is to inject cash investments into electric vehicle manufacturing companies directly. Canada has already started doing this by partnering with Ford and offering $600 million to lure the company into investing in the Oakville plant. The figure contributed to 30% of the whole project’s costs. Before this move, Canada has maintained its investment percentage at 20%, and by adding their contribution to 30% will attract more investors who had initially shied off.
Canada can alternatively enforce supply-side or demand-side incentives. Both the federal and provincial governments may offer direct subsidies or tax credits to companies willing to invest in Canada as electric vehicle manufacturers. These companies on assessment will perceive this as a favorable operating environment where they do not have to pay heavy taxes as it was before. Customers may be covered under reduced purchase tariffs of electric vehicles so that they do not have to pay high VATs. By doing this, buyers will be encouraged to purchase more electric vehicles.
Finally, the Canadian government may decide to implement a national zero-emission vehicle mandate which will require all car manufacturers to make electric car sales of up to 30% by 2030 and improve the figure to 100% by 2040 (Sharpe & Pelchat, 2020). This policy will ensure that even the automobile companies that are yet to start electric car manufacturing start immediately to meet this target, lest they risk losing their operating licenses.
Options
The first option required that the government directly invests into electric car manufacturing companies.
Advantages.
Directly pumping money into such projects will attract other global electric vehicle investors to Canada.
Disadvantages
Higher investment costs.
Inadequacy of funds for other economic sectors.
Uncertainty of the economic future due to the effects of COVID-19.
The second option proposed the enforcement of supply-side or demand-side incentives.
Advantages
More companies will be attracted to invest in Canada.
Consumers will make more purchases.
The GDP of Canada will grow courtesy of electric vehicle buying and selling.
Disadvantages
Loss of revenue due to tax subsidies.
It will take longer to implement these policies.
The third policy option is the implementation of the zero-emission vehicle mandate.
Advantages
The production rate of electric vehicles will tremendously increase.
The government does not have to invest directly.
The policy will target local manufacturers.
Disadvantages
It takes longer to implement this policy.
Many companies may fail to reach the target within the given period.
Electric vehicle car sales will increase across Canada.
Recommendation
I would recommend that Canada adopts the third option because the implementation process requires minimal capital. This option is unlike the first, which will require the government to get money to facilitate the process or lose revenue in the second option through tax reduction. Besides, when the policy is implemented, many companies will work on a target because of the fear of losing their operating licenses, which is good motivation.
Conclusion
In conclusion, Canada is working frantically to encourage the manufacture of electric vehicles because of the advantages of doing this outweigh the disadvantages in the foreseeable future. Many countries are targeting to reduce carbon emission by stopping the production of fuel-driven automobiles and replacing them with electric vehicles. The countries have partnered with Ford by investing cash into a $1.84 billion project that will see the establishment of a manufacturing plant in Oakville. However, this is not the only option that Canada can adopt to address the matter. Canada can as well enforce supply-side or demand-side incentives like introducing tax subsidies or implementing a national zero-emission vehicle mandate. However, upon evaluation, the best policy option to adopt is the national zero-emission vehicle mandate, based on the reasons in the recommendation section.
References
Sharpe, B., & Pelchat, J. (2020). Canada is falling behind on transition to electric vehicles . https://policyoptions.irpp.org/magazines/may-2020/canada-is-falling-behind-on-transition-to-electric-vehicles/ .
