Will Trump short-circuit the electric car market?
President Donald Trump’s nominee to head the Environmental Protection Agency has said he wants to review tough federal gas mileage and greenhouse gas standards for 2025 that were set up under President Barack Obama. One effect of a rollback could be to slow down the auto industry’s momentum toward producing affordable electric cars.
In a meeting with President Trump in late January, auto executives asked him to ease up on the Corporate Average Fuel Economy (CAFE) standards. And EPA nominee Scott Pruitt -- who as Oklahoma attorney general repeatedly sued the EPA to overturn various regulations -- said in his confirmation hearings he wanted to review how the Obama EPA set those standards.
With an easing of the standards, auto companies could narrow their efforts to improving traditional internal combustion engines with less need to refine and sell electric vehicles. “Loosening of the 2025 CAFE standards would unquestionably allow automakers to refocus their attention on combustion-only vehicles at the expense of affordable electric cars,” said Michael Harley, executive analyst for Kelley Blue Book.
Any loosening of the standards is far from certain, however. After a review, the Obama EPA finalized the 2025 regulations, and changing them would require another lengthy review process. “Neither President Trump nor the next EPA administrator can roll back clean car regulations with the stroke of a pen,” said Roland Hwang of the Natural Resources Defense Council, who noted that the NRDC and other environmental groups would vehemently oppose such a step.
One of the best-known proponents of electric cars, CEO Elon Musk of Tesla (TSLA), is on President Trump’s economic advisory council. But it’s unlikely he could influence any EPA decisions from that spot. And Musk’s sway with the president may well be diminished now that his companies have joined other tech firms in asking the courts to overturn Mr. Trump’s targeted travel ban.
Of course, Tesla isn’t alone in selling electric cars. Like the Tesla models, the new Chevrolet Bolt can go more than 200 miles on a single charge. But in the complicated structure of CAFE regulations, a significantly large number of electric vehicles would have to be sold to have an impact on a manufacturer’s fleet average.
And since gas prices have been low in recent years, consumers have passed on high-mileage electric cars in favor of lower-MPG SUVs and pickups.
If the Trump administration does manage to amend the 2025 CAFE standards, here are some reasons automakers would have less incentive to continue developing and marketing electric cars:
--Electrics aren’t profitable. “Automakers aren’t making money on electric vehicles,” said Michael Harley of Kelley Blue Book. “The technology is expensive, and the manufacturing is specialized.” Tesla has yet to turn a profit.
--Gasoline vehicles have gained MPG. Lighter materials for bodies and engines, more efficient automatic transmissions and other technological improvements have made vehicles with traditional engines much more fuel efficient. Thus, manufacturers might well be able to meet loosened CAFE standards without selling lots more electric cars.
The target for 2025 fleet averages is 54.5 MPG. But since those calculations have a different formula than that used to rate individual vehicles, that translates to about 36 MPG needed as an average of MPG ratings that consumers see on window stickers.
--Tax credits are crucial for electric cars. Current law gives a federal tax credit of up to $7,500 to buyers of electric cars. And that can make a sizable difference. The Chevy Bolt, for instance, is priced at $37,495, but the tax credit brings the net cost down to $30,000. And that credit would likewise be important for the Tesla Model 3, projected to begin deliveries later this year at $35,000.
But those credits begin phasing out for an individual manufacturer after it sells 200,000 electric cars. Analysts estimate that both General Motors (GM) and Tesla will reach that in the third quarter of 2018. With a budget-minded Republican House and Senate, it seems unlikely that Congress will extend or expand the tax credit.
Even if the EPA standards are loosened, however, some supportive state policies will continue to encourage electric cars. California, where standards now match the federal numbers, has the right under the Clean Air Act to set its own standards. And 12 other states can opt to match the California standards. But the momentum for affordable electric cars wouldn’t be as great as it would be if the tough 2025 federal standards were maintained.