EV sales have slowed. Do massive subsidies still make sense?

Enormous investments in EV technology shook the automotive industry in both Canada and the U.S. this week. Honda promised to spend $15 billion in On‐ tario on Thursday morning. Toyota unveiled new in‐ vestments in Indiana that afternoon, bringing its to‐ tal spending on EVs in that state to $8 billion US.

"In Canada, our target is that 100 per cent of all light duty cars and passenger truck sales be zero emission by 2035," said Prime Minister Justin Trudeau at the Honda announcement in Alliston, Ont. "As a great Canadian once said, that is where the puck is going and that is where we're going to be."

But the surge in invest‐ ment comes as the underly‐ ing EV industry remains at a crossroads. Growth forecasts have plateaued, charging in‐ frastructure has not kept pace and electric vehicle prices have pushed the cars out of reach of many con‐ sumers.

For evidence of that look no further than Tesla.

WATCH: 'Historic' Honda EV investment will boost economy for generations, says Trudeau

The EV giant's quarterly earnings this week showed a nine per cent drop in firstquarter revenue. That's the biggest decline Tesla has re‐ ported since 2012 and came as a surprise to even pes‐ simistic analysts.

In an earnings call on Tuesday, Tesla's mercurial CEO Elon Musk said com‐ panies that are scaling back on EV production are getting it wrong.

EVs will eventually dom‐ inate the market, Elon Musk says

"The EV adoption rate globally is under pressure and a lot of other manufac‐ turers are pulling back on EVs and pursuing plug-in hybrids instead. We believe this is not the right strategy and electric vehicles will ultimately domi‐ nate the market," he said.

Musk helped stem stock losses with a promise that the company will begin pro‐ duction of a new, affordable EV model sooner than ex‐ pected.

Tesla had initially said it would start production on its long awaited $25,000 US model near the end of next year. Musk now says the company plans to start pro‐ duction in "early 2025, if not late this year."

But the rough patch of news has not been limited to Tesla.

Ford now says its electric vehicle unit lost $1.3 billion US in the first quarter alone. The company only sold 10,000 vehicles in that peri‐ od. In other words, Ford lost about $132,000 US for every EV it sold in the first three months of the year.

The company had already announced it would make less than half the electric pickup trucks it had promised.

That came on the heels of an announcement from Gen‐ eral Motors that it would cut production of its EVs, citing slowing demand.

In its own earnings call on Thursday, the car-rental giant Hertz reported losses that were almost three times worse than expected as it tries to speed up the process of offloading electric vehicles in its fleet.

Hertz made an enormous bet on electric vehicles in 2021. It ordered 100,000 Tes‐ las but eventually conceded they led to lower rental rates and higher costs.

Hertz officials say the company only actually pur‐ chased a fraction of that number. But it's now trying to sell about 30,000 electric cars by the end of this year.

EVs traditionally have higher repair costs, but the rental car company was clob‐ bered on re-sale values after Tesla cut prices last year.

So, do massive subsidies and tax credits for the EV in‐ dustry make sense when the industry itself seems to be struggling?

Auto industry experts say there's a crucial distinction between slowing rates of growth and outright decline.

EV sales are still projected to grow over the next few years. Just not by as much as they have in the past.

'Chicken and the egg' situation for EV uptake

"The entire industry agrees we are going to get to a place where we are at zero emissions. The only debate is how long it's going to take," said Flavio Volpe, head of Canada's Automotive Parts Manufacturers' Association.

That timeline depends on several key factors. But price and charging infrastructure are among the most impor‐ tant.

Electric vehicles are still considerably more expensive than traditional alternatives. Meanwhile, range anxiety and a lack of charging infra‐ structure make some con‐ sumers think twice about buying electric.

Volpe was asked whether investing in plants like Hon‐ da's facility in Alliston, Ont., makes sense before con‐ sumer demand is fully real‐ ized.

WATCH: Electric vehicles are becoming easier to find in Canada, but not easier to afford:

"A lot of this is chicken and the egg," Volpe told CBC Radio's Metro Morning. "You've got to get companies like Honda, like Stellantis and Ford to commit to making these vehicles in partnership with provinces and the coun‐ try."

As they build up capacity, Volpe says prices should come down. As prices come down, more people will buy EVs and as they do, more charging stations will be built.

But experts say everyone, from consumers to manufac‐ turers to governments, need to know EV adoption rates will not move in a single sweeping line toward their targets.

Most change happens in fits and spurts - that's proba‐ bly the road ahead for EVs as well.