New EPA Rules Will Disrupt Industry as Automakers EV Plans Too Low

The US Environmental Protection Agency is set to announce sweeping new EPA rules Wednesday that are expected to increase EV market share in the US to ~60% by 2030 and 67% by 2032. The rules are a big step forward for electrification, and an improvement on President Biden’s earlier pledge of 50% electrification by 2030. But it’s also way ahead of what many automakers plan, leaving millions of EV sales by 2030 to.

Although the new regulations are yet to be finalized (or even officially announced), sources within the EPA expect that they will set emissions levels so low that two-thirds of vehicles will need to be electric by 2032.

The rules would bring federal guidelines close to California’s new guidelines, although it doesn’t appear that doing so will harmonize them entirely. California’s Advanced Clean Cars II (ACC2) regulation targets 68% EV by 2030 and 82% by 2032, significantly more than the rumored EPA rule.

The California rule also bans the sale of pure combustion cars in 2035, although the EPA’s rules don’t seem looking that far into the future just yet. California deliberately set its goals slightly lower than what the state could achieve on its own in hopes of bringing other Section 177 states and perhaps even the federal government on board. It wanted those rules to be “one floor, no ceiling.”

A harmonization of the minimum requirements would be important, as automakers have long expressed a desire for uniform guidelines across the country. Automakers were granted that wish in 2012 when President Obama (with then-VP Biden) and the state of California agreed on emissions regulations. But then they couldn’t help it and lobbied the EPA to break the rules and later asked for a reversal of the broken rules they lobbied for.

We’ll have to see what the proposed rules look like when they come out on Wednesday, but from what we’ve seen so far it looks like the rules won’t quite match. Which begs the question: could the auto lobby even ask the EPA to tighten these rules, bring them into line with California, in line with their previously expressed desire for a unified regulatory regime? It would be in line with their stated goals anyway… but maybe don’t hold your breath (unless a high-emitting petrol car drives by, then you should probably hold your breath, at least until the smog clears).

All in all, the auto industry’s biggest lobbying organization recently backed the government’s emissions standards for 2023-2026, so let’s hope they turn a new leaf.

The proposed rules also lag behind public opinion. According to a recent poll, a majority of US voters support the requirement that by 2030 100% of new cars sold must be electric. The idea received “strong” or “somewhat” support from 55% of respondents and only 35% opposed it. That’s one of the reasons we’re asking, “Why not sooner?” about a 2035 target for 100% electric car sales.

Automakers’ current commitments for 2030 are too low

Until we see those new EPA rules, we can compare each automaker’s current production schedules to what the EPA seems to be proposing and see how things might play out over the next decade based on those commitments. For the last column, we multiplied current year US sales by the company’s reported 2030 EV sales percentage (US, where possible, global for companies that have not announced a US-specific target). Some brands will sell more or fewer cars by then, and the overall market may grow or shrink, but we should be able to learn a few things with rough math:

Several smaller companies or sub-brands of the above companies have set targets to be 100% electric by 2030. Alfa Romeo, Lotus, Bentley, Cadillac, Mini and Rolls-Royce have all committed to phasing out combustion by 2030.

From the rough math in this table we can see a few things:

• Only three automakers, Daimler, Jaguar and Volvo, have planned to exceed the EPA’s new targets.
• BMW is on par with its >50% exposure and a few other brands are not too far behind with their 50% exposure.
• Kia makes good electric cars. What’s it like being second or third worst on this table?
• Automakers’ current commitments for 2030 account for only about 44% of EV sales, averaged/weighted for their current sizes. That means overall EV commitments would need to increase by about a third to meet the 60% target reported by the Biden admin.

But here’s what I would consider most importantly Conclusion: There is a gap of 1.7 to 2.5 million cars just waiting to be filled. Those are cars that have to be electric to meet the EPA’s supposed guidelines, and automakers have no current plans to make them.

The auto industry is on the brink

So someone has to build these cars. Who will it be?

A complete car development cycle takes about 7 years. So if automakers are to prepare for these new EPA rules, they must start today if they haven’t already.

Some automakers may take a wait-and-see attitude, hoping for legal challenges or an eventual relaxation or reversal of regulation. But those automakers will cede time and leadership to a slew of companies that would be happy to gobble up those millions in vehicle sales.

These companies are listed at the bottom of the table: the EV brands. Companies like Tesla, Rivian, Polestar, and Lucid may not have full capacity yet, but they’re looking at this blue ocean, this sea of ​​vehicles that need to be sold but nobody seems to want to sell, and are actively positioning themselves around so many of these free ones to snag sales as possible. They’re not just starting their 7-year development cycles now, they started years ago. Not only will they be finished in 2030, they will be on the road long before that.

And even BYD and NIO or other Chinese brands might enter the US market for the first time ever due to this untapped demand. Americans are wary of Chinese cars, but they were also wary of Japanese cars until a crisis in the 1970s forced a recalibration of the auto industry. And it looks like a realignment is about to happen.

But not only will they snag those free vehicles, they’ll eat away at incumbent automakers’ sales as well. We’ve seen this in every segment Tesla gets into — incumbent automakers’ ICE sales are declining in proportion to Tesla’s rising sales.

So if automakers don’t want that, they’d better raise their targets for 2030. And they’d better do it now, not in a few years while they wait and see if those rules are challenged. We should see plenty of announcements in the coming weeks as automakers know what’s good for them.

Are the new EPA rules achievable?

Electric vehicle sales have grown fairly rapidly over the past decade. In 2013, the first year that Tesla Model S sales began in earnest and when Nissan Leaf sales soared, 47,000 electric vehicles were sold in the US. In 2022, 762,000 electric vehicles were sold. Using just those two data points, that’s a compound annual growth rate of 36%.

In 2022, US EV market share was 5.8%. To reach 60% by 2030, that means we’ll need to grow EV sales at a compound annual growth rate of 34% until then — a similar growth rate to what we’ve already seen. So those EPA numbers are achievable if we continue our efforts at this pace.

Of course, this requires a lot of investment, work in the supply chain and deployment of chargers and other related laws and regulations, even at the local level, to prepare the country for the EV transition. But many of these investments are currently being made by the Biden administration, through allocations of funds from the Inflation Reduction Act, and states and cities have also slowly removed barriers to installing chargers (e.g. through the right to charge).

The EPA’s move does not come in a vacuum, and while it is a step further than the government’s early ambitions, work has been done and the market has evolved since that early executive order. With huge demand for EVs and so much new investment in EV production, the government seems confident that these goals are achievable.

In addition, these goals are necessary. That’s what the IEA says all new car sales worldwide must be electric by 2035 if we are to avoid the worst impacts of climate change. So it’s really not a question of whether we should do it or whether we can. We have toso we better find a way to do it, because that’s something we don’t have a choice about.

And while many automakers will complain about how hard it is, perhaps a shift in perspective is warranted: Electric cars are coming, and out-of-shape automakers will be caught with their pants down, even more so than they already were. A quick kick in the butt from regulators could force them into actions they would never have taken on their own.

And as customer demands continue to shift toward better, cleaner vehicles and sales of worse, dirtier vehicles dry up, backward automakers will find themselves in a better position than if they had just sat there twiddling their thumbs and hoped everything would work out passes.

Plus, we’ve seen EV targets being exceeded elsewhere. Norway is easily meeting the world’s most ambitious targets, Britain has brought its schedule forward (twice), and in China some petrol cars are already becoming worthless. There are many examples of electric vehicle adoption happening faster than expected. So maybe a “can-do” attitude would suit us here in America… where we used to appreciate that sort of thing.

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