Key Takeaways
The National Highway Transportation Safety Administration (NHTSA), charged with improving safety on U.S. roads, finalized fuel economy rules, raising fuel efficiency to 50.4 miles per gallon by 2031.
The final numbers reflect a downward adjustment in mileage standards from NHTSA’s original proposal last year but are still aggressive and aimed at forcing Americans to buy electric vehicles.
This may reflect the difficulties being encountered by U.S EV automakers who are losing on each electric vehicle they produce and diminished interest in them by American buyers.
NHTSA’s final rule requires 50.4 miles per gallon (mpg) by 2031 instead of 58 mpg by 2032 in its original proposal, based on a fleet that currently averages 29.1 mpg.
President Biden’s administration finalized tighter fuel economy rules for autos, trucks and sport utility vehicles through 2031 that lowers the rate of efficiency improvements for light trucks and the compliance penalties for automakers compared to those originally proposed. This comes on the heels of declining sales of electric vehicles and problems with government programs to fund chargers with billions of dollars of taxpayer money.
In July 2023, the National Highway Traffic Safety Administration (NHTSA) proposed increasing Corporate Average Fuel Economy (CAFE) requirements by 2 percent per year for passenger cars and 4 percent per year for light trucks from 2027 through 2032. Under the final rule, NHTSA will not require an increase for light trucks for 2027 and 2028 and will lower the 4 percent requirement to 2 percent from 2029 through 2031. For heavy-duty pickup trucks and vans, fuel efficiency will be required to increase by 10 percent per year for the 2030-2032 model years and eight percent annually for those produced in the 2033-2035 model years. According to NHTSA, the rule will increase fuel economy to about 50.4 miles per gallon by 2031 from 29.1 miles per gallon currently. Last year, the agency projected the rule would increase requirements to 58 miles per gallon by 2032.
If automakers do not meet the CAFE requirements, they must buy credits or pay fines. According to NHTSA, its original proposal to increase fuel economy standards through 2032 would cost the industry $14 billion in projected fines, including $10.5 billion for the Detroit Three ($6.5 billion for General Motors, $3 billion for Chrysler-parent Stellantis and $1 billion for Ford Motor). The previously proposed fuel economy standards were expected to result in fines for automakers of $2,151 per vehicle in non-compliance costs, or as much as $1 billion annually. Under the final rule, the auto industry is collectively expected to face a total of up to $1.83 billion in fines through 2031 — and it could be zero — based on various model estimates. The fines would not have produced any environmental benefits or additional fuel economy and would have diverted automaker capital away from the massive investments required by Biden’s electric vehicle transition and raised car prices for consumers of conventional vehicles. In June 2023, Stellantis and GM paid a total of $363 million in CAFE fines for failing to meet U.S. fuel economy requirements for prior model years—money that could have been spent in meeting future CAFE requirements.
There are other regulatory actions that the Biden administration has taken to mandate the gas-to-electric vehicle transition, which include the Energy Department’s new compliance calculations related to EV mileage ratings and EPA’s stricter tailpipe emission rules that would promote more electric vehicles. In April 2023, the Department of Energy proposed rules revising its “Petroleum-Equivalent Fuel Economy” rating that would have lowered the compliance value of electric vehicles by 72 percent in 2027. Its final rule will gradually reduce the petroleum equivalent EV fuel economy rating through 2030 and by 65 percent in total, giving automakers more time to adjust. By lowering the compliance value of electric vehicles, more electrics are required to meet the rating.
In the spring of 2023, the Environmental Protection Agency proposed the toughest-ever limits on tailpipe emissions, forcing car makers to sell a huge number of zero-emission vehicles in a relatively short time frame or pay stiff penalties. The EPA designed the proposed regulations so that 67 percent of sales of new cars and light-duty trucks would be all-electric by 2032, up from 7.6 percent in 2023, a radical remaking of the American automobile market. The regulation was designed to match Biden’s goal that 50 percent of new car sales must to be electric by 2030. Due to criticism from the American Auto Workers’ union, EPA revised its plan to have electric vehicle sales increase more gradually through 2030 but then to rise sharply. EPA models show that postponing the sharp increase in electric vehicle sales until after 2030 would eliminate roughly the same amount of auto tailpipe emissions as the original proposal by 2055.
Conclusion
The Biden administration is slowing the mandated transition to electric vehicles in the near term to give auto makers more time to produce electric vehicles that consumers may want in the future. Americans are not interested in paying more for a vehicle that does less to meet their requirements for personal travel. As a result, electric vehicles are remaining on dealers’ lots. Many Americans want to take long road trips or need to tow a trailer and do not want to spend huge amounts of time at the few EV charging stations available to the public. For more adoption of electric vehicles, prices need to come down, more charging stations need to be built, vehicle range needs to be improved as well as the battery technology that guides it, and insurance costs need to be more commensurate with those of traditional vehicles. Auto makers are currently incurring huge losses on each electric vehicle they produce, using profits from gasoline vehicle sales to absorb those losses. For example, U.S EV automaker Lucid is losing $430,000 per vehicle. That means Biden’s pressure on automakers results in higher costs for all vehicles since the costs of compliance have to be paid for by sales of cars that make money.
