Tesla sales: how much do rebates matter to buyers in Canada?

2013 Tesla Model S on Chilcotin Highway, Canada [photo: owner Vincent Argiro]

The government of Ontario amended its plug-in electric vehicle incentive program in March, eliminating incentives for vehicles with a recommended price of $75,000 or more.

What effect will this have on demand for Tesla’s Model S and X?

Two years ago, this site analyzed the impacts on electric-car sales in British Columbia when funding for purchase rebates up to $5,000 ran out in Februrary 2014, and was later restored in April 2015.

DON'T MISS: When Electric-Car Incentives Return: British Columbia Case Study (Jan 2016)

That episode may offer some insights, though the usual caveat that “past performance is not necessarily indicative of future results” applies.

Canadian plug-in electric vehicle sales actually rose during the period BC's incentives vanished, so we compared sales trends in British Columbia to those from Ontario and Quebec, the other two provinces with incentive programs.

The sales ratio—BC / (ON+QC)—for the Chevy Volt and Nissan Leaf dropped by half when the purchase rebate disappeared. The ratio then rose slightly above prior levels when the purchase rebate returned.

2014 BMW i3 REx vs Chevrolet Volt comparison [photos: David Noland, Tom Moloughney]

2014 Nissan Leaf, Bear Mountain, May 2014

Tesla Model S at Cypress Mountain, British Columbia, Canada

This seemed to indicate “mass market” plug-in electric vehicle buyers were sufficiently price-sensitive that a $5,000 price increase deterred them from going electric.

But the sales ratios for the BMW i3 and Tesla Model S were unaffected during this period—suggesting purchasers of luxury brand plug-in electric vehicles were not so price-sensitive.

To be sure, a formal academic analysis would have teased out other factors.

READ THIS: Electric-Car Market Share In 2013: Understanding The Numbers Better (Jan 2014)

The BMW i3 went on sale after incentives had vanished, so the first several months’ worth of buyers might not have been price-sensitive—or they may have been electric-car supporters loyal to BMW, who were going to buy an i3 regardless of price.

The minuscule rise in the Model S sales ratio after incentives disappeared seemed to indicate Tesla buyers to that point also weren’t price sensitive. (The increase probably wasn't statistically significant.)

But the halving of sales for the Volt and Leaf when rebates expired was roughly in line with a 2013 analysis of the American auto market by base-model price point.

Plug-in electric car sales incentives in Canada by province [chart: Matthew Klippenstein]

That study found that each $5,000 increase in base-model recommended price, from $25,000 to $50,000, seemed to shrink the market by 40 percent.

Put differently, sales of autos with a starting price of $40,000 and above were 40 percent lower than sales of those at $35,000 and above, which were themselves 40 percent lower than sales of vehicles starting at $30,000 and above.

These examples are subject to so-called “noise factors”. Buyers rarely buy base-model vehicles, and dealers and carmakers sometimes discount their products.

Still, the rough agreement between the two data sets seemed to suggest they were in the right ballpark.

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Tesla buyer price sensitivity In BC

Public-policy support for plug-in electric vehicles in Canada is summarized in the table above. The past two years have seen a variety of changes in provincial rebates.

In March 2016, British Columbia eliminated rebates for plug-in electric vehicles priced at $77,000 or above. The same month, Ontario cut rebates for electric cars with recommended prices of $75,000 or above.

The accompanying charts shows the monthly sales figures for the Tesla Model S in British Columbia and Ontario, along with six-month averages of the sales ratio between the provinces. All data was sourced from IHS Auto.

Tesla Model S sales in Canada: impacts of rebates in British Columbia [graph: Matthew Klippenstein]

The cancellation of rebates in BC in 2014-2015 is shown not to have affected the sales ratio. Skipping over March 2016 for the moment, we observe that the sales ratio did not change after February 2017, when Ontario rebates were restored.

If Tesla buyers in Ontario relied on these rebates, we would have expected sales there to increase. The BC/Ontario sales ratio would have decreased because the denominator (Ontario sales) would have been larger.

2013 Tesla Model S on Chilcotin Highway, Canada [photo: owner Vincent Argiro]

If Ontario sales were unaffected by the restoration of incentives in February 2017, it follows that they would have been unaffected by the reduction of incentives in March 2016.

The roughly 40 percent drop in the BC/Ontario sales ratio would then be due to the loss of incentives in BC, and would fall roughly in line with what was happened to Volt and Leaf sales in prior years.

So: has Tesla run out of price-insensitive customers in British Columbia? Perhaps - but it should be emphasized that other factors could be at play.

Tesla Model X sales in Canada: impacts of rebates in British Columbia [graph: Matthew Klippenstein]

This pattern could have been the result if the Model X cannibalized more Model S sales in BC than Ontario—or if more British Columbians are now postponing Model S purchases in favor of the Model 3.

Though it's more limited, Model X monthly sales data seems to corroborate the conclusion that Tesla buyers in Ontario aren’t price-sensitive.

The drop-off in sales ratio from October to December 2017 likely isn't significant, Tesla having noted in the past that vacationing clients can hold up end-of-quarter deliveries. (Though if at the end of the six months ending March 2018, the sales ratio remains low, it could be worth further inquiry.)

Tesla Model S sales in Canada: impacts of rebates in Quebec [graph: Matthew Klippenstein]

Tesla buyer price sensitivity In Quebec

We also performed the same analysis with Quebec monthly sales data, this time comparing the Quebec-Ontario sales ratio.

For the Model S, the sales ratio remained remarkably consistent from March 2015 to February 2017, despite the reduction of Ontario rebates halfway through the data period.

We can pair this with the observation that the BC/Ontario sales ratio remained consistent from March 2016 to December 2017—during which Ontario rebates were restored—to hypothesize cautiously that Ontario Tesla buyers were unaffected by the presence of purchase rebates through the end of 2017.

This suggests that the drop in the Model S Quebec/Ontario sales ratio from April 2017 is due to Quebec buyers, whose buyers appear to be price-sensitive at the $125,000 level.

The drop-off is only about 25 percent, instead of the 40 percent seen in British Columbia. Again, the low ratio for the October-to-December 2017 period likely isn't significant.

Tesla Model X sales in Canada: impacts of rebates in Quebec [graph: Matthew Klippenstein]

Moving on to the Model X, the Quebec-Ontario sales ratio dropped about 45 percent when Quebec amended its rebate program to exclude $125,000 electric vehicles.

Ontario Tesla sales Ouija 

The data suggests Tesla has already sold vehicles to all the price-insensitive buyers in British Columbia and Quebec, meaning rebate reductions in these provinces are now affecting sales, as measured against Ontario.

Through December, however, it did not appear as though the presence or absence of rebates affected Model S or Model X sales in Ontario.

This would suggest that the province’s elimination of rebates for electric vehicles with recommended prices above $75,000 will not impact Tesla’s sales in the province.

Whatever path its sales take in the province, the arrival of competitors and the Model 3 seem to be more likely reasons for any changes to Model S and Model X sales.

2013 Tesla Model S on Chilcotin Highway, Canada [photo: owner Vincent Argiro]

Model 3 rebate status

Speaking of the Model 3, the soon-to-arrive model will be unaffected by Ontario’s recent rebate alteration.

Its Canadian market price has been set at CAD $64,100. From early reports, the price breaks down as follows: $45,600 for the base model, $11,900 for the long-range option, and $6,600 for premium upgrades.

At time of writing, the Tesla Canada website indicates that the base model, rated at 354 km (220 miles) of range compared to 499 km (310 miles) for the Long Range version, will arrive sometime during 2019.

Plug-in electric car market share in Canada by province [graph: Matthew Klippenstein]

Postscript: Can EV buyers afford Ford?

Canadian plug-in electric vehicle advocates and observers would be well-advised to fasten their seat belts. The next Ontario election will be held on June 7, and the Progressive Conservative Party of Ontario leads by an enormous margin in opinion polls, with the ruling Liberal Party a distant third.

The PCP is led by Doug Ford, brother of the late Rob Ford, the famous-for-all-the-wrong-reasons Mayor of Toronto. It is widely expected that if Ford becomes Premier, plug-in electric-vehicle subsidies will be greatly reduced and perhaps even eliminated altogether.

Ontario is Canada’s most populous province, with one-third of the country’s population; the American equivalent would be if the entire East Coast was a single state.

Unsurprisingly, Canadian plug-in electric vehicle market share thus tracks the Ontario market closely.

Provinces of Ontario and Quebec, Canada

With Canada’s most generous incentive program, Ontario’s rebates currently run up to $14,000.

If plug-in sales do indeed drop by 40 percent with each $5,000 increase in cost, the loss of $14,000 in rebates could reduce some vehicles’ sales to one-quarter of their level when incentives were in place. It is to be hoped such a calculation remains a hypothetical exercise.

In a pessimistic scenario, the Canadian plug-in electric vehicle market could be relatively flat in 2018 after two years of more than 60-percent annual growth.

While Tesla’s Model S and X sales in Ontario might be unaffected, the loss of incentives would likely slow the rollout of the Model 3, as Ontarians expecting to spend roughly $30,000 (after rebates) would end up at a price of about $45,000 instead.