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Canada's gas demand could peak this decade, given EV and hybrid trends: BMO

At dusk, Tesla Motors electric cars are plugged in and charging at a Tesla Supercharger electric vehicle charger in Pleasanton, California, March 12, 2018.
BEVs, PHEVs and hybrids have accounted for around 20 per cent of the overall market for new vehicle sales in Canada for three straight quarters. (Photo by Smith Collection/Gado/Getty Images) (Smith Collection/Gado via Getty Images)

Canada could hit a peak in gasoline demand this decade because of the upward trajectory of electric and hybrid vehicle sales, a BMO economist says.

Sales of battery electric (BEV), plug-in hybrid (PHEV) and hybrid vehicles dipped slightly in the first quarter of 2024, according to Statistics Canada, amid a decline across nearly all categories regardless of fuel type. But overall trends point to a “predominant shift towards all three combinations” of vehicles, Erik Johnson, a senior economist at BMO Capital Markets, told Yahoo Finance Canada.

“Anyone who thinks that this product segment is somehow going to shrink or disappear in the year ahead is certainly not looking at the data very closely,” he said.

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Johnson says the growing market share of BEVs, PHEVs and hybrids, and a trend toward better fuel economy in gas-powered vehicles, mean peak road-based gasoline demand in Canada is “something that we will probably see within this decade, as opposed to something that we're going to see 20 years from now.”

BEVs, PHEVs and hybrids have accounted for around 20 per cent of the overall market for three straight quarters, up from a previous peak of 15 per cent in Q1 2023. On a year-over-year basis, combined sales of the vehicles jumped by more than 50 per cent compared to Q1 2023.

Johnson says he expects the EV and hybrid market share to keep growing, though at a slower and less consistent pace, with price point a primary factor, especially in the current economic context.

“We're not going to see the same acceleration in the market that we've seen over the past several years,” he said. “And that's naturally the phase of what this product segment is going through. It's gone from very much a niche product before the pandemic to now, in some markets, with B.C. and Quebec being the predominant ones; alternative fuel vehicles are almost one of every three new vehicles that get purchased. Naturally once there's that many vehicles in the market, growth is just going to slow down.”

Until more affordable EV models hit the market, growth is likely to be gradual, Johnson says, with many Canadians facing mortgage renewals at higher rates and other cost-of-living challenges. Though the savings on fuel costs can be significant, the upfront cost of a new vehicle and high interest rates on financing will be a barrier for many, he adds.

Canada's response to recent tariffs imposed on Chinese EVs in the U.S. and Europe will also determine the pace of growth, Johnson says.

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.

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