The global auto market finds itself at a crossroads, caught with one foot in the fossil fuel world, and another in the electrified world. Some automakers are leading the charge towards electric vehicles (EVs), others are getting pushed while dragging their feet. Some automakers are doing both simultaneously.
The march towards electrification proceeds. EV sales continue to tick up as costs decline and new models roll off assembly lines. But the massive changes in the transportation system still lie off in the (not so distant) future.
Major EV changes afoot
Tesla posted a strong profit for the second quarter, taking in $1.1 billion, doubling revenue to $12 billion, compared to a year earlier. Elon Musk’s company delivered more than 206,000 vehicles, also up twice the volume from last year. After years of losing huge sums of money, Tesla appears to be hitting a new stride.
But Musk’s competition is heating up. Mercedes-Benz recently announced its decision to make the full pivot to EVs by 2030, the latest in a string of global automakers making the switch. At this point, most global automakers have plans to either go all-electric over the next decade or so, or they have plans to substantially transition most of their sales.
In June, an analysis from EY found that EV sales in the U.S., China and Europe “will outstrip all other engines five years sooner than previously expected,” putting the milestone at 2028 for Europe, 2033 for China and 2036 for the United States. The pace accelerates thereafter, with non-EV sales capturing just 1 percent of total sales in 2045. In the short run, Europe will lead the way, EY says.
A separate report from BloombergNEF found that EVs could capture 16 percent of the global market by 2025. But for the world to meet net-zero emissions targets by 2050, huge changes to public policy are needed to accelerate the transition.
Public policy needed
Carmakers are already getting pushed by governments, who are finally springing into action as the climate crisis begins to dramatically worsen. In mid-July, the European Union formally proposed a phaseout of the internal combustion engine by 2035.
The Biden administration has some other tools at its disposal – namely, federal regulation.
The U.S. is behind, but is on the verge of a new policy and regulatory push.
According to the Washington Post, major automakers including Ford, General Motors and Stellantis (previously Fiat Chrysler, and a company that includes Jeep, Dodge and other well-known brands) are expected in the coming days to back a White House goal of reaching 40 percent EV sales by 2030. The 50 percent goal that President Biden is aiming for could be possible with federal investment, the carmakers say.
Of course, those are voluntary pledges. “You’ve got to be in the 50 percent-plus range by 2030. And it’s got to be firm,” Chet France, a former senior executive in the EPA’s Office of Transportation and Air Quality and a consultant for the Environmental Defense Fund, told the Post. “If we’re not serious about achieving that, then we’re not serious about our long-term climate goals.”
To get there, the automakers want a substantial investment from the federal government. President Biden initially proposed more than $170 billion in EVs and EV infrastructure.
However, the bipartisan infrastructure deal announced in June only promised to fund a fraction of that, only to see it further whittled down to a paltry $7.5 billion as part of the updated July 28 framework passed by the Senate, plus potentially another $7.5 billion as part of a broader infrastructure financing vehicle, according to the White House. In other words, the bipartisan deal cut funding from President Biden’s original proposal by more than an order of magnitude.
That’s a start, but only a start. The Biden administration has some other tools at its disposal – namely, federal regulation. The EPA and the Department of Transportation are gearing up for a joint announcement in the coming days to tighten up fuel economy standards for cars and light-duty trucks. The current Trump-era fuel economy standards ratchet up at a modest pace of 1.5 percent per year. The new proposed standards, beginning in Model Year 2023, would increase at a rate of 3.7 percent per year.
That rate is slower than even what was agreed to over a decade ago during the Obama administration (5 percent annual increases). But by 2026, the Biden standards would finally go further, according to press reports, although details remain unclear.
“Now is the time for strong rules, not half measures.”
“Now is the time for strong rules, not half measures,” the nonprofit Center for Biological Diversity wrote in a full-page ad Wednesday in The New York Times. “President Biden can set strong clean car standards that protect the climate – or he can hit reverse.”
Federal regulations will continue to push the auto industry along a course of steady improvements in efficiency, and corporate decisions to pivot to EVs will also speed that process up.
But much hinges on the $3.5 trillion reconciliation package that the Democrats intend to push on their own, a parallel effort to the bipartisan deal. The details remain to be seen, but the package could contain the massive federal investment necessary to transition the transportation sector to electrification.