Joe White Global Autos Correspondent
Greetings from the Motor City!
Welcome to Spring! Or “wrenching season” as we call it in Detroit. We greet the Equinox here not by dancing around a stone circle, but by heading to our garages to ready our hot rods for summer fun. But not today. It’s snowing!
The good news is that we have a new cure for insomnia. It’s the Environmental Protection Agency’s 884-page “regulatory impact analysis” supporting the new vehicle CO2 emissions rules released this week.
Don’t read that now. We’ll start with a much shorter summary of the Biden Administration plan to slash the climate impact of cars and trucks without triggering voter opposition.
We’ve got new studies of why U.S. consumers are not embracing electric vehicles as quickly as automakers had hoped. And there’s good news from the world’s new car showrooms.
One note before we dive in: On Tuesday I wrote that the United Auto Workers have not organized a foreign-owned auto factory in the United States that did not have ties to one of the Motor City Three. Readers reminded me this is wrong. The UAW represented workers at Volkswagen’s Westmoreland, PA assembly plant, which closed in 1988.
Have a great weekend! Here we go -
Today –
* The Biden Administration’s EV Compromises
* Auto sales have a spring in their step
* Another Chinese EV maker scales Europe’s walls
* Biden’s slower road to an electric future The Biden Administration, under pressure from automakers, unions and political rivals, backed away this week from earlier proposals that could have forced automakers to boost electric vehicle sales to 67% of the total U.S. car and light truck market by 2032.
Alternatively, the lead could be: The Biden Administration this week laid out the most aggressive regulations yet to curb greenhouse gas emissions spewed out by cars and trucks. By 2032, just 17% to 29% of vehicles sold could run only on petrol.
Both statements are valid. Both understate the complex impact of the new Environmental Protection Agency rules designed to ratchet down vehicle pollution by 49% by 2032.
The Biden Administration is aiming its climate policies at the balancing point of a triangle formed by voters who support action to curb climate change, industry groups and consumers worried about the risks of new technology and workers whose livelihoods depend on fossil fuels – in this case, combustion trucks and SUVs.
Whether Biden located this magic spot with the new EPA tailpipe standards won’t be clear for years - or until November’s U.S. Presidential election votes are counted.
Here are some ways the Biden rules could change business as usual for automakers and consumers:
Biden stepped back from EPA proposals last year that required a rapid transition to a 67% EV new car and truck fleet by 2032.
The final rules give automakers more flexibility to offer a variety of cleaner powertrain technologies over the next eight years. The U.S. auto market could become the automotive powertrain equivalent of the breakfast buffet at a European hotel where you can get everything from croissants to omelets. Except here we are talking about hybrids, plug-in hybrids, EVs and maybe hydrogen-fueled vehicles.
There could be a smaller share of EVs in eight years than the administration once envisioned. But trucks with big V-8s could be expensive and rare. More on that in a minute.
* Plug-in hybrids got a boost. Vehicles that have both a strong electric drive AND a combustion engine will continue to earn bonus regulatory credits on the assumption that they really will operate for miles on just battery power.
The EPA had previously proposed phasing out extra credits for plug-in hybrids starting in 2027, based on research that suggests many owners drive mainly on combustion power. The plug-in hybrid bonus is a win for Stellantis, Toyota, Ford and Germany’s BMW and Mercedes and other automakers which have continued investing in that technology (notwithstanding modest U.S. sales so far. ) GM and Volkswagen could add plug-in hybrids to their lineups, pivoting from previous all-electric strategies.
* Politics are front and center. There is “absolutely no mandate” to switch to all EVs, said EPA Administrator Michael Regan, addressing Republican charges that Biden intended just that.
That won’t stop the election year attacks on the rule as a “ban” on combustion vehicles – a slogan Republicans hope will win votes in Michigan, which is one of seven pivotal states that will decide who sits in the Oval Office.
Combustion vehicles could drop to as little as 17% of the market, according to the EPA’s scenarios.
Or not. Because there are so many variables.
The EPA acknowledges that its EV sales forecasts assume that billions in federal subsidies will continue to flow for years to offset high EV production costs and charging network development. The November election could change that. Cancel the subsidies and the auto industry would likely demand a do-over.
* Automakers will struggle to achieve the new CO2 limits without big changes to popular models.
By 2027, the CO2 limit for the average car will be 131 grams per mile, and by 2032 that would drop to 73 grams per mile, under the EPA rules. The V-8 Mustangs Ford loves to sell won’t make the cut at today’s 467 grams/mile – unless they are balanced out with a lot of zero emissions Ford EVs.
Tailpipe-free EVs like the Tesla Model Y meet the 2032 passenger car standard today, of course. So do plug-in hybrids such as the Toyota Prius Prime plug-in hybrid (60 grams/mile), the Kia Niro plug-in hybrid (71 grams/mile) and the Ford Escape plug-in hybrid (52 grams/mile.)
* Affordability is a challenge. Cheap Chinese EVs would be a fix, but President Biden and Republicans support trade barriers to keep them out.
* The Motor City Three scored a win on big trucks. The EPA gave an easier path for heavy-duty pickup trucks such as the Ford Super Duty or the Ram 2500. These are the profit machines for the MC3 – and support thousands of their United Auto Workers employees. EV trucks that can match the towing capability of current heavy duty pickups haven’t been invented yet.
Medium duty pickups will be allowed to chug out more than four times the CO2 allowed for a standard car, according to the EPA.
A 2032 Ford Super Duty or Ram 2500 would need to be 25% more efficient than today’s F-150 hybrid to comply with the EPA limits. That’s a tall order. But automakers could sell heavy-duty pickups that emit more CO2 than the EPA limits if they ramp up sales of fully electric medium-duty vans to the likes of Amazon and FedEx.
Look for hybrid heavy-duty trucks, more electric vans like GM’s BrightDrop series or Ford’s electric Transits and perhaps hydrogen-fueled heavy pickups or commercial vans.
* One more thing: Red State Attorneys General, groups representing the oil industry and the coalition of corn farmers and ethanol producers could persuade the Supreme Court to hear legal challenges to the EPA’s effort to change the auto market status quo. The justices are already weighing whether regulatory agencies have too much power.
Competing interest groups will now work the refs at the National Highway Traffic Safety Administration to craft Corporate Average Fuel Economy standards.
Automakers want those rules to act in harmony with the EPA CO2 rules. Why aren’t those rules already synchronized? Great question.
Readers who want to hack into the weeds can find the full text of the EPA rules here. A technical document explaining the agency’s methodology is here. If Moby Dick was too short for you, this is your read.
* Essential Reading
* Chinese EV companies are turning Japanese
* A “red alert” on climate change
* EVs are clobbering platinum
* EVs and America’s “petrol-head society” Why aren’t U.S. consumers buying electric vehicles as enthusiastically as their European or Chinese counterparts?
Two new studies offer answers to this question.
Blame America’s “petrol-head society” for creating a market that prizes large, heavy vehicles with fossil-fueled engines and floats on relatively cheap gasoline, write consultants at JATO Dynamics in a new report.
Stir in slower development of EV fast-charging infrastructure than in China or Europe and polarized politics that have turned “electric vehicles” into fighting words for some, and you get a market where EV adoption is lagging far behind China and the EU, the JATO paper concludes.
China accounts for more than half the global demand for EVs, with Europe No. 2 at 22% of total EV demand and the U.S. at just 12%. The rest of the world accounts for 13%, according JATO’s data.
China now has 760,000 public fast chargers – more than 10 times the number in Europe. Counting Tesla’s Supercharger network, the United States has just 28,000 public fast chargers.
Separately, Boston Consulting Group in a new study say U.S. consumer acceptance of EVs hinges on automakers delivering four things:
>20-minute charging times. >30 minutes maximum to find and wait for access to a fast-charging station. >350 miles or more of driving range per charge. >A price of $50,000 or less.
Only one EV on sale now in the U.S. meets all four criteria: Hyundai’s new Ioniq 6 sedan. The Tesla Model 3 comes close.
On the optimistic side, BCG estimates that “if everything goes right” EVs could account for 30% of U.S. sales as next-generation EVs come to market. Hybrids could rise to 15-20% of sales.
Not so positive for automakers is BCG’s estimate that mainstream automakers are losing an average of $6,000 per EV, and they will not be able to break-even in the near-term without government subsidies.
When mainstream automakers roll out their third-generation EVs around 2030, gains in assembly automation, design efficiency and battery scale should allow them to make money, BCG senior partner Andrew Loh told the Auto File.
Of course, Tesla and BYD are profitable today…or at least, they were in the fourth quarter of last year.
* Stellantis and California make peace
Stellantis and California regulators cut a deal to end a dispute over clean air compliance that the automaker said forced it to cut shipments of Jeeps to the Golden State and reduce jobs at factories in Michigan and Ohio.
The agreement will not mean a quick reinstatement of a third shift at the Jeep Grand Cherokee factory in Detroit, Stellantis said. The Toledo, Ohio factory that builds Jeep Wrangler off-roaders and Gladiator pickups will stay on two-shift production as negotiated with the local union.
* Spring selling season! U.S. and European consumers are powering a springtime burst in new vehicle sales.
New car sales in the European Union rose 10.1% in February. Sales of hybrids jumped by nearly 25%.
In the United States, J.D. Power forecast March sales will be up nearly 11% over a year ago, climbing to a 16.4 million vehicle annualized sales rate. Power estimates consumers spent a record $129 billion on new vehicles in the first quarter.
However: Power cautioned that inventories are rising, and prices and dealer profit margins are getting squeezed.
“With Q1 2024 almost complete, the industry is continuing along its trajectory back to pre-pandemic market dynamics,” Power analyst Thomas King wrote.
So much for the industry’s aspirations of moving to a “build-to-order” business model and vows to never again build up hefty inventories that undercut pricing.
Power forecast a 3.6% drop in average transaction prices from a year ago, the largest year-over-year decline ever for March. The average vehicle price is trending toward $44,186 - still more than your parents may have spent for their first house.
* Stellantis helps its Chinese partner enter Europe
Chinese EV maker Leapmotor will assemble vehicles at a Stellantis factory in Poland, Reuters reported Friday. Stellantis owns 21% of Leapmotoor.
The companies aren’t talking, but Stellantis CEO Carlos Tavares said last month he was open to building low-cost Leapmotor EVs anywhere in the Stellantis global production system. Why? Because low-cost Chinese EVs are a threat to Stellantis in Europe and Latin America, and Leapmotor offers a short-cut to a cost-competitive response.
Chinese automakers are not waiting around for punitive import tariffs to establish production inside markets they have opened up with a surge of exports.
Chinese automaker Chery is considering building an assembly plant in Europe, maybe in Italy. The company said it will launch sales in Italy later this year.
World No. 1 EV maker BYD plans a factory in Hungary to serve Europe, and said this week it will start selling vehicles in Greece.
BYD is looking for a place to build an assembly plant in Mexico – inside the North American free trade zone that includes the United States.
Renault CEO Luca de Meo earlier this week urged EU policymakers to support broader industry-government cooperation (meaning subsidies) to counter the challenge to Europe’s automotive champions from Chinese EV makers.
As the United States has discovered, the political game changes when “foreign automakers” become big domestic employers.
* Fast Laps
- Tesla shares slipped Friday on a Bloomberg report that it’s cutting output at its Shanghai factory. Tesla said earlier this week it will raise prices in China as of April 1 for its best-selling Model Y. Higher prices often lead to slower sales. Tesla’s direct order sales system gives the company a direct view of its demand pipeline. The yellow flag on Chinese demand hit shares of Chinese EV startups including Nio, Li Auto and Xpeng.
- Tesla’s board of directors is under fire from U.S. Sen. Elizabeth Warren, who urged securities regulators to investigate whether the company’s directors are too beholden to CEO Elon Musk.
- The New York Auto Show kicks off next week, with an industry conference on Wednesday. Doors open to the public on Friday, March 29. The menu of new model debuts is limited so far, but Hyundai will unveil new looks for the Tucson SUV and Santa Cruz truck. Show organizers also promise a $2.2 million Rimac Nevera electric hypercar will be there.
- Aston Martin has its third CEO in four years. Adrian Hallmark, who was running Volkswagen’s Bentley brand, will take over driving the turnaround at the premium British brand forever associated with fictional spy James Bond.
- Tesla said most workers at its Berlin factory voted against joining the IG Metall union. IG Metall, which represents workers at Volkswagen, Mercedes, BMW and other companies in Germany’s auto sector, said it will still get 16 of 39 seats on the Tesla factory’s works council.
- BMW said spending on electric vehicles will peak this year.
- U.S. prosecutors charged a Canadian citizen with stealing trade secrets about Tesla’s battery production technology.
- A fight over EV metals has broken out between Abu Dhabi and China. Abu Dhabi’s most valuable company has swooped in with an offer to buy a Zambian copper mine that had previously agreed to sell out to a Chinese mining company. Looking forward to the Netflix mini-series: Copper Wars.
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