Automakers Scale Back EV Targets, Putting Spotlight on EPA and NHTSA Proposed Vehicle Regs

It’s been a rough few months for the all-electric dream. While the United Auto Workers strike continues to disrupt operations at major automakers’ facilities, carmakers are dialing back their EV production targets due to high costs and slower near-term demand.

At the same time, the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) are moving ahead with a pair of rules that, together, “amount to a de facto ban on cars and trucks using liquid fuels,” according to the American Petroleum Institute.

Biden’s vision for the EV market meets reality

In response to EPA and NHTSA rules that would force Americans into EVs – despite manufacturers’ uncertainty about consumers’ near-term demand for the vehicles – Fox News reported last week that a coalition of 25 Senate Republicans and Sen. Joe Manchin (D-WV) introduced legislation to block the EPA’s proposed tailpipe emissions rules from taking effect.

Reporting on the Senators’ coalition letter, Fox News writes that the EPA’s proposed standards would require an extraordinary percentage of new vehicles sold to be all-electric within the decade:

“If finalized and implemented, a staggering 67% of new sedan, crossover, SUV and light truck; up to 50% of bus and garbage truck; 35% of short-haul freight tractor; and 25% of long-haul freight tractor purchases could be electric by 2032, the White House projected.”

The proposed legislation would prohibit regulators from mandating the use of one specific type of technology, like battery-powered engines, over another. Senate Finance Committee Ranking Member Mike Crapo (R-ID), one of the coalition’s leaders, criticized the EPA’s proposal for picking “winners and losers” despite the realities of the market.

The automotive industry isn’t thrilled with the White House’s prescriptive approach, either. In July, the Alliance for Automotive Innovation – the association representing the manufacturers producing most vehicles sold in the U.S. – told the EPA that its proposed tailpipe emissions rules are “neither reasonable nor achievable in the timeframe proceeded” and wholly disregard other low-emissions technologies.

According to the American Petroleum Institute’s comments on the proposed standards:

It is simply not possible for a manufacturer to comply with the proposed standards without producing significant numbers of BEV (battery electric vehicles).”

Compliance with NHTSA’s and EPA’s pair of proposed regulations would require a complete overhaul of the transportation and energy sectors, teeing up the rules for constitutional challenges under the precedent set by West Virginia v. EPA.

Higher costs, fewer choices

In recent weeks, American automakers’ announcements to dial back EV production targets make the EPA and NHTSA’s proposed regulations look even more outrageous.

Just this week, General Motors announced that the company is dialing back its ambitious goal to build 400,000 electric vehicles by mid-2024 to “adjust to slower near-term growth in demand” and bring down costs. In July, Ford announced similar adjustments to its EV strategy. The company scrapped its previous target of building over 2 million EVs per year by the end of 2026, and did not offer a new date by when it hopes to hit that production volume.

The reality is, at current cost levels, EVs are a hard sell. According to Kelly Blue Book, in July 2023, the average transaction price for an EV was approximately $5,000 more expensive than the average gas-powered car.

The price discrepancy is even more extreme for trucks, where an electric version of the same model is priced at nearly $15,000 more than its internal combustion engine counterpart. Electric trucks have been a particular target of automakers’ recent cost-cutting measures – in recent weeks, GM, Ford, and Tesla all announced pullbacks and delays for production of each company’s pricey electric truck model.

The White House admits that compliance with new vehicle emissions regulations is likely to further raise costs for consumers. Regarding NHSTA’s proposed CAFÉ standards, API writes:

NHTSA projects that its proposed fuel efficiency standards will result in consumers paying higher upfront costs for new vehicles. Although NHTSA estimates fuels savings, over a vehicle’s lifetime, will exceed increased purchase costs, it is on average “roughly $100” for a passenger car or light truck…an amount that is not analytically significant when many new vehicles cost between $30,000 and $50,000.

“Furthermore, that NHTSA conclusion does not seem to take into account the approach some OEMs may take by raising the cost of all vehicles to subsidize the cost of battery electric vehicles (BEV).”

This should be unsurprising given that the official overseeing the development of NHTSA’s CAFÉ standards, Ann Carlson, previously advocated for climate policies that raise consumers’ costs in the short term in exchange for supposed long-term benefits.

Carlson’s nomination to lead NHTSA was pulled by the White House in May following overwhelming criticism of her aggressive climate policy track record, lack of vehicle safety experience, and her history of supporting frivolous lawsuits against the American energy industry.

But for the last six months, Carlson has remained at the helm of the agency as acting administrator, prompting Republicans on the Senate Commerce Committee to write to President Biden arguing that her acting role violates the Federal Vacancies Reform Act. As such, the Senators argue, all actions she has taken during that time – including proposing the agency’s CAFÉ standards – are invalid, marking another addition to the stack of legal challenges piling up against the Biden administration’s proposals.

Bottom Line: The vehicle regulations put forward by President Biden’s EPA and NHTSA face serious legal challenges and pushback from bipartisan leaders in Congress. If comments from industry leaders and legislators weren’t sufficiently convincing, recent moves in the automotive market should make it clear – the White House’s proposed vehicle emissions standards are not supported by either consumer demand or market realities.

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