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Presidential election a fork in the road for automakers’ EV plans

By Grant Schwab and Breana Noble, Grant Schwab and Breana Noble, The Detroit News
Published: March 3, 2024, 6:00am

DETROIT — Depending on whom Americans elect to the presidency in November, the U.S. auto industry could be looking at two vastly different product and profitability scenarios.

As a result, the industry is holding its breath. The Biden administration last year proposed stricter emissions regulations into the next decade, suggesting EV penetration would need to be close to 60% by 2030 for manufacturers to comply. A forecast from business analysis firm GlobalData Plc expects even under that scenario, EV adoption would be around 48% by 2030, while it might be more like 32% under former President Donald Trump, who has promised to strip back requirements and revoke California’s waiver to set its own rules if he returns to the White House.

“Over the last decade or so, CO2 legislation has become such a divisive topic between Republicans and Democrats,” GlobalData forecaster Kevin Riddell said. “Having an inconsistent policy makes it tougher for the OEMs and suppliers to plan for all for this, to bring the economies up, and to start actually making profit off these things.”

Disagreements on policies that encourage EV adoption have been fodder for attacks between the candidates. Trump calls President Joe Biden’s proposed emissions rules an “EV mandate” that will kill jobs because EVs have fewer parts and consumers aren’t ready to switch. Biden says if Trump were to roll back standards, the United States would lose auto jobs to China and face negative climate impacts.

Another Biden term would pressure automakers to invest in more EV capacity and battery production as well as pursue low-cost EVs, especially in light of increasing foreign competition and consumer hesitation, Riddell said. To what extent will depend on the final rules expected out next month, though reports suggest the planned 2030 targets will be pushed out.

Meanwhile, a second Trump administration would bring greater profitability for automakers, Riddell said. Based on already-announced investments, the EV sales mix will increase. But with less regulatory pressure, traditional automakers could lean on their profitable internal combustion engine vehicles for longer, producing more tailpipe emissions.

One thing is certain: A majority of Americans aren’t buying EVs. Fully electric models represented 7.6% of new vehicle sales in the U.S. last year, up from 5.9% in 2022, according to Kelley Blue Book estimates. That growth, though, is slowing, as consumers are reluctant to pay the premium prices early adopters have been.

The average transaction price on a new EV last year was more than $61,700 compared to $47,450 for other models, excluding any applied consumer incentives, according to auto information website Edmunds.com Inc. Automakers late last year announced EV-related capacity cuts, nixed programs and delayed launches.

“You need an ecosystem for this to work,” said Sam Abuelsamid, principal e-mobility analyst at market research firm Guidehouse Inc. “You can’t just build the vehicles and hope for the best. You actually have to address every aspect of that ecosystem — charging, the battery manufacturing, the mineral sourcing, the whole supply chain, and the recycling at end of life.”

The lack of that developed ecosystem — for now — is why the U.S. has not had a “hockey stick” moment in EV adoption, Abuelsamid said, referring to a growth curve that starts slow before soaring upward. In certain parts of the country, it could take years before charging infrastructure, affordability, desirable EV products and electricity from emissions-free sources align.

What’s at stake

The lagging EV ecosystem threatens automakers’ ability to comply with regulations, particularly under Biden’s accelerated schedule, which could jeopardize profitability. Automakers like General Motors Co. are calling for more flexibility. The Detroit automaker is predicting positive variable profit on EVs this year, Chief Financial Officer Paul Jacobson said this week.

“You’ve got to make sure that you don’t get into a position where we’re forcing adoption on people,” he said at Citibank NA’s Global Industrial Tech and Mobility Conference. “The more we focus on trying to use the regulatory environment to drive adoption, that can get a bit dangerous, because that’s ultimately what leads to overproduction and having to incentivize to push those vehicles out and really hindering profitability.

“Slowing that adoption down and still achieving the goals, working proactively with administrations to make sure that we’re looking at it from the consumer data as well as trying to drive adoption, is the ultimate compromise.”

GM’s strategy also revealed some unintended consequences of emissions rulemaking. The automaker backtracked on its “all in” on EVs plan, announcing it’ll introduce plug-in hybrids to its lineup to comply with regulations because EV demand isn’t where the company had hoped.

The Biden administration may scale back a final Environmental Protection Agency rule from its proposal made last year to reduce tailpipe emissions by 56% from new cars, SUVs and trucks between model year 2027 and ‘32, according to reports from several news outlets. The EPA rule would work in concert with a proposed National Highway Traffic Safety Administration rule that sets vehicle fuel economy standards.

The EPA proposal doesn’t specify exactly how automakers should meet the standards, but it suggests that EVs may need to make up 67% of all new vehicle sales by 2032. Standards for that year are expected to remain firm in the final EPA rule, though the ramp-up would be slower, according to the New York Times and the Washington Post.

Cars and trucks are the United States’ biggest emitter of greenhouse gases. They make up nearly a quarter of emissions, according to the EPA. Environmental groups are critical of calls to soften emissions targets.

“What is at stake is the planet. The biggest single step we can take to fight global warming is to make our cars, including SUVs and pickups, use less and then no fuel, no gasoline,” said Daniel Becker, director of the Center for Biological Diversity’s Safe Climate Transport Campaign. “If you weaken that, it means the most important thing you can do would be less effective and take longer. That’s more carbon dioxide in the atmosphere, more smog, making kids sicker.

“These are the same companies that lost a quarter of market share to the Japanese in the 1970s and ‘80s. That will happen with the Chinese, if American manufacturers don’t make EVs in significant numbers.”

If a Republican like Trump is elected, a further regulatory pullback on EVs is expected. That could bring weaker emissions reduction targets, challenge the ability of California and other states to enforce gas- and diesel-powered new-vehicle sale bans by 2035, and potentially limit or end access to current federal incentives for plug-in vehicles.

“Every time he rants, he rants about electric vehicles,” U.S. Rep. Debbie Dingell, D-Ann Arbor, said of the former president. “But here’s the reality: We are competing in a global marketplace. Electric vehicles are going to be one of the products that is being offered. I’m seasoned enough to remember when the domestic market here lost 10 years, because Japan was ready with small cars when gasoline prices went up and the domestic market wasn’t.”

The threat of Chinese competition has become a point of emphasis in recent weeks — a reality exacerbated by a report that BYD Auto Co. Ltd. is looking to open a plant in Mexico, a country with which the U.S. doesn’t have tariffs on vehicles that meet certain North American component requirements. The BYD Seagull city car in China sells for around the equivalent of $11,000, which even with import duties would be at a competitive price point, though most Americans prefer larger vehicles.

With automakers competing globally and in markets like China and Europe where vehicle emissions rules are more aggressive than in the U.S., no matter the election outcome, they’re still going to have to invest in EVs and compete with the Chinese, Riddell noted. Under a more aggressive regulation scheme, if domestic manufacturers are unable to hit cost reduction goals, he sees two potential unintended consequences: Consumers could be pushed into the used market, and it could create a greater opening for the Chinese.

“It could at least help reduce the barriers between the two countries if that type of situation was happening,” said Riddell, noting less-expensive battery technology like lithium-iron-phosphate batteries have been developed out of China. Ford Motor Co. will license that technology from Chinese manufacturer Contemporary Amperex Technology Co. Ltd. to build LFP batteries in south-central Michigan’s Marshall. Stronger regulations could encourage more of that.

“You won’t quite have the same problem under Trump,” Riddell said about reliance on Chinese technology. “If you don’t have the stronger rules, you don’t need the big push.”

Tesla Inc. has said it will launch a $25,000 EV, with CEO Elon Musk suggesting it could happen as early as 2025. Ford is developing a low-cost EV platform that could support vehicles costing as little as $25,000, though hasn’t specified an expected launch timeline. Stellantis’ Citroen e-C3 hatchback in Europe starts at less than $22,000 (19,990 euro), and CEO Carlos Tavares has said the company is pursuing an affordable EV option appropriate for the U.S. marketplace.

Tavares said last Tuesday at a roundtable in New York that Stellantis is prepared for either electoral outcome. The automaker will sell eight EVs in the U.S. market by the end of the year and has said it will have 25 all-electric models by 2030. On the opposite end, Tavares emphasized the new platforms the company is launching are “multi-energy,” which means although they were designed with fully electric vehicles in mind, they also can support hybrids and even internal combustion engines.

“If there is a slowdown on the (EV) ramp up, you don’t want to put all of your money in that capacity, because … that is going to kill your profitability,” Tavares said, adding that Stellantis has firm investments through the end of 2027 but is flexible beyond that. Decisions for that period can wait until after the election.

“If the acceleration scenario is the outcome, I can decide by the end of ‘24 to fill the capacity gap between ‘28 and ‘35.”

Ford, for its part, has emphasized a strategy combination of EVs, hybrids and internal combustion engine vehicles. Last week, CEO Jim Farley emphasized that affordable EVs are going to be the biggest driver of adoption, not regulation.

“The reality is that regulators around the world, including the U.S., have put their foot firmly on the scale, and there is no amount of hybrid mix or (plug-in hybrid) mix in the world that is going to get you to be compliant,” he said at the Wolfe Research Global Auto Conference in New York. “Regulators can’t be completely at odds with labor and consumers.”

GM CFO Jacobson also said the company has flexibility to switch over lines quickly with modular manufacturing.

EV jabs on the campaign trail

The economy and immigration remain some of the top issues on voters’ minds this year, but lobbying groups are also latching onto EV policies as a hot-button issue. Groups on either side of the EV transition have joined the 2024 fray by launching television advertising campaigns.

The American Fuel and Petrochemical Manufacturers, a lobbying group for the oil and gas industry, launched an ad campaign targeting the Biden administration’s promotion of electric vehicles in several battleground states, including Michigan.

“They want to force you into an electric vehicle,” one ad said.

The Environmental Defense Action Fund, an environmental advocacy group, fought back this week. It released a new ad in Michigan last week featuring Mark Rowland of Eaton Rapids, a Republican and Air Force veteran who promoted EVs as consumer money-savers that are good for Michigan jobs.

“When I bought my Chevy Volt 10 years ago, my friends were surprised. They thought it was a hippie car,” Rowland said in the ad. “But I know performance when I see it.”

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Patrick Anderson, principal and CEO of Anderson Economics Group, told The News it was unfortunate how “highly politicized” EVs have become.

“I remember Bill Ford lamenting at the Mackinac Conference over a year ago when he said cars used to be something that would get people together,” Anderson said. “And now at least for EVs, it often divides us.”

Anderson added that car-buying decisions are “more polarized than any other major purchase decision I can identify.”

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