Key Takeaways
Auto dealers nationwide are asking President Biden for relief from onerous mileage regulations that are destroying their businesses.
The president is forcing auto makers to produce electric vehicles that are piling up at the dealerships, draining capital and driving up the cost of gas vehicles most Americans want to buy.
Under EPA and NHTSA edicts, manufacturers are required to make about 2/3 of their vehicles electric by 2032 or pay enormous civil penalties.
Rather than banning cars and trucks that could rile up voters, the Biden administration has decided to force auto makers to make vehicles with mileage requirements so high the only way to comply is to force electric vehicles on the market.
Almost 5,000 auto dealers nationwide wrote to President Biden, urging him to slow down his aggressive push to force automakers to produce and sell electric vehicles. His administration has proposed fuel economy and tailpipe emissions standards that would require two-thirds of the cars sold in 2032 to be electric, increasing consumer costs and unfairly burdening U.S. businesses. Earlier this year, the Environmental Protection Agency’s (EPA) proposed tailpipe emissions standards that are the most aggressive federal regulations of their kind, forcing the majority of new vehicle purchases to be electric within a decade. That rule was followed by the Department of Transportation’s proposed efficiency standards that have the same resulting sales figure for electric vehicles. According to auto dealers, electric vehicle demand today is not keeping up with the large influx of electric vehicles arriving at the dealerships due to the current regulations, and the vehicles are stacking up on their lots even with deep price cuts, manufacturer incentives, and generous government incentives. Some dealers are now backed-up, taking up to 12 months to sell electric vehicles that consumers do not want. Profits on the sale of internal combustion engine (ICE) vehicles are being used to cover some of the losses auto makers are accruing on the electric vehicles they produce.
The dealers tempered their letter by saying that Biden’s goals were admirable, but “unrealistic based on current and forecasted customer demand,” as the best indicator of demand is how electric vehicles are stacking up on dealer lots. There are many issues facing the EV industry such as lack of charging infrastructure, energy grid instability and lack of reliable mineral supplies vital for EV batteries. Biden needs to allow time to make electric vehicles more affordable, to develop the domestic mineral resources that are needed to make batteries, to build the charging infrastructure and prove its reliability, and for American consumers to get comfortable with the technology and make the choice to buy an electric vehicle. Biden’s current policy is to compel manufacturers to make increasing numbers of electric vehicles Americans do not want to buy.
Further, switching too quickly to electric vehicles could present a national security risk given China’s dominance of the global EV industry. China produces about 75 percent of lithium-ion batteries, 70 percent of production capacity for cathodes and 85 percent for anodes, two key parts of such batteries. And, more than 50 percent of lithium, cobalt and graphite processing and refining capacity is located in China — minerals vital for EV batteries and other green energy technologies. China has also purchased stakes in African mines to ensure a firm control over mineral production. Knowingly forcing the manufacture and purchase of vehicles dependent upon China is a national security threat.
The enthusiasm of the early EV adopters has petered out, as the more wealthy Americans who can afford the higher cost of an electric vehicle already have made that purchase. Further, the current EV technology is not adequate to support the needs of the majority of consumers, who are concerned about price, and range, especially issues with range loss due to factors including temperature changes due to the effects of cold and heat on battery performance. Many customers do not have garages or access to public charging stations, making a transition to an electric vehicle difficult.
Auto makers are also struggling to electrify the bulk of their fleets as quickly as the Biden mandates demand, despite having produced a wide variety of EV options. Automakers recently have been adjusting to consumer reality. General Motors pushed back its EV targets and postponed a new EV lineup in an effort to preserve profitability; Ford postponed around $12 billion in planned EV investments; Toyota remains convinced of the value of hybrids and Tesla is in a price war to entice consumers.
EV Sales Continue to Rise
EV adoption is steadily increasing, despite overwhelming consumer sentiment regarding the state of the technology and its infrastructure. EV sales were a record 7.9 percent of total car sales in the third quarter. S&P Global Mobility, however, recently reported a significant drop in the percentage of people open to purchasing an electric vehicle compared to 2021, due mainly to consumer finances as inflation has eaten into consumer pocketbooks and interest rates for auto loans remain high. About 50 percent of respondents in the S&P survey consider EV prices too high, despite the significant price cuts that the market has experienced in recent months. In 2019, 58 percent of respondents said they were open to purchasing an electric vehicle, with that number increasing to 86 percent of respondents in 2021. As of May 2023, however, that number fell to 67 percent, indicating a reduction in growth, but not an erasure of growth.
Biden’s Proposed EV-Related Standards and Rules
EPA’s proposed tailpipe regulations will impact car model years 2027 through 2032. Under the regulations, 67 percent of new sedan, crossover, SUV and light truck purchases, up to 50 percent of bus and garbage truck purchases, 35 percent of short-haul freight tractor purchases, and 25 percent of long-haul freight tractor purchases are expected to be electric by 2032. Biden previously set a goal of ensuring 50 percent of car purchases to be electric by 2030.
The Department of Transportation’s National Highway Traffic Safety Administration’s (NHTSA) proposed Corporate Average Fuel Economy (CAFE) standards require an increase in fuel efficiency of 8 percent annually for model years 2024 to 2025 and 10 percent for model year 2026. Beginning in 2027, passenger cars and light trucks are required to improve fuel efficiency 2 percent and 4 percent annually, respectively. Under the rules, pickup trucks and work vans must increase fuel efficiency 10 percent every year starting in 2030. By 2032, average U.S. fleet fuel economy could reach 58 miles per gallon. According to the Environmental Protection Agency, the estimated average fuel economy for model year 2022 cars was 26.4 miles per gallon, meaning the proposed standards would mandate automakers more than double fuel efficiency in less than a decade or face substantial penalties.
According to NHTSA’s analysis, Ford would likely pay $1 billion in civil penalties if NHTSA’s proposal were finalized. Under NHTSA’s proposal, automakers face risks of substantial civil penalties because they hold a major portion of the market share for light-duty trucks. General Motors and Stellantis, the two other major American car companies, face much higher civil penalties than Ford. The money paid in civil penalties could be invested more wisely toward the transition to electric vehicles, toward higher wages for workers, or toward any number of other policy objectives. By comparison, in the entire history of the CAFE program, the total civil penalties paid for light-duty fleets amounts to less than $1.5 billion. NHTSA received more than 62,900 public comments related to its proposed fuel economy regulations.
According to the Alliance for Automotive Innovation, an industry group which represents many major automakers, companies will pay more than $14 billion in non-compliance penalties under the proposal, impacting one in every two light trucks in 2027 to 2032, and one in every three passenger cars in 2027 to 2029. Car prices are expected to increase by thousands of dollars. Automakers cannot afford to make the investments necessary to reach the Biden Administration’s goal of 50 percent EV sales by 2030, while also making major investments in internal combustion engine (ICE) vehicles. Costs of vehicles for Americans which are already high will rise further, pricing many consumers out of the market entirely.
Conclusion
Auto dealers are warning Biden that they cannot transition to electric vehicles as quickly as he wants as in some cases 12 months of electric vehicles are sitting on their lots. Despite a continued increase in EV sales, the initial hype and purchases of electric vehicles have fizzled out as early adopters have received their vehicles. More prudent buyers are worried about cost, interest rates on loans, range, charging infrastructure, and other issues. Auto dealers and auto makers want Biden to slow down his aggressive mandates on manufacturers to produce electric vehicles.
They claim that Biden’s proposed vehicle tailpipe and efficiency rules are impractical and work against industry, agency and administration electrification goals. The mandates will increase costs to the American consumer with absolutely no environmental or fuel savings benefits. The resulting price increase is likely to decrease sales and increase the average age of vehicles on U.S. roads. In the past, profits from existing ICE vehicles funded investments in the next generation of ICE vehicles, and are currently being used to fund the transition to electric vehicles. Auto makers cannot afford to pay billions of dollars in civil penalties for non-compliance and yet continue to improve the efficiency of gas vehicles and make improvements to electric vehicles that will make them more conducive to American buyers.
