Yves here. If the stakes weren’t so high, the situation would be comical. Too many backers of the so-called energy transition seem to believe that if consumers are exhorted about seriously bad climate outcomes, and given the opportunity to buy supposedly planet-saving goods, perhaps with some incentives too, we’ll be well on our way to our rainbows and unicorns Green Energy Future. No one seems to want to face up to the fact that going on a big enough energy diet entails a massive overhaul of all sorts of transportation, heating, and manufacturing processes. The idea that some uncoordinated initiatives would be adequate was never sound.
And now we are seeing more evidence of how ad-hocracy, with some selective efforts boosted by regulatory and incentives sticks and carrots, isn’t meeting expectations even on the level of particular programs. The “if we build it, they will come” assumption with EVs was always questionable. Somehow no one thought they needed to worry about pesky details like the cost and distribution of charging stations, or the impact on grids.
More specifically, various policy-makers and boosters also appear to have lost sight of the lessons of the 1990s EV push. Then, California and a consortium of northeast states adopted a mandate that 5% of the cars sold in their states by 1999 be EVs. The scheme was cancelled because demand was not even remotely there.
Here, the EPA had tried to launch a variant of the 1990s program wrapped in existing regulatory methods, by requiring a level of fuel efficiency fleet-wide that presupposed a pretty high level of EV sales. The EPA is trying to rework the fine points of the rules so as to give the car-makers more wriggle room. But they are kvetching that they look unlikely to manufacture enough demand for the EVs to hit the targets, and are effectively being punished for not enough consumers being able to afford or otherwise well suited to EVs.
Consider that the Toyota chairman predicted last month that EVs would never exceed 30% of the market due to among other things the distribution of power and thus eventual distribution of chargers. Admittedly Toyota has been a contrarian compared to most other auto-makers and is relying more on various types of hybrids to lower emissions. But even if Toyota has underestimated eventual EV uptake, their concern appears not to have gotten enough consideration, that grid access and range anxiety can and may very well seriously constrain EV uptake.
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
- Carmakers in the United States have been eager to help advance the EV agenda in the past half a decade or so.
- Last year, the Detroit majors warned they could suffer fines of over $10 billion if they fail to comply with the new, stricter fuel efficiency standards.
- EV sales last year hit a record, but towards the end of the year, demand began to wane, triggering a price war among carmakers.
Carmakers in the United States have been eager to help advance the EV agenda in the past half a decade or so. Ford, GM, and all the European and Japanese majors have poured billions into a whole new lineup of all-electric vehicles in anticipation of mass adoption. Now, they’re hitting the brakes.
In July last year, the Environmental Protection Agency proposed new, tighter fuel efficiency standards aimed at encouraging greater EV adoption. The proposal was to lift fuel efficiency requirements from 49 miles per gallon to 58 miles per gallon on a fleet-average basis. The deadline for hitting the new target was set for 2032.
At the time, the car manufacturing industry did not have a lot to say. Then, as the implications of the new regulation began to sink in, they wrote a letter to the administration complaining that they faced billions in fines if they failed to hit the targets proposed by the EPA.
This was the first sign not all was going well between car manufacturers and the Biden administration despite their unanimity on the need to switch from petrol and diesel cars to electric vehicles. The reason it was not going well at the time was the EPA’s plan to revise the way it measured the fuel economy of EVs.
The revision, the regulator said, would encourage carmakers to make more fuel-efficient ICE cars instead of using their EV cars as a license to keep making highly emitting ICE cars.
As the EPA put it at the time, “Encouraging adoption of EVs can reduce petroleum consumption but giving too much credit for that adoption can lead to increased net petroleum use because it enables lower fuel economy among conventional vehicles, which represent by far the majority of vehicles sold.”
The debate quieted down towards the end of the year but moved to the fore once again at the beginning of this year, as carmakers began reporting 2023 results—and revealed their EV ventures have been invariably loss-making. That revelation comes amid reports about record high EV sales across the United States last year and upbeat forecasts for an even stronger year in 2024.
Last year, the Detroit majors warned they could suffer fines of over $10 billion if they fail to comply with the new, stricter fuel efficiency standards. They also said the compliance costs would surge from about $550 per vehicle now to over $2,100 if the new requirements are passed. Now, they have come out and said, albeit indirectly, they cannot boost their EV sales as fast as the federal government wants them to.
Last year, sales of EVs represented 8% of the total. The purpose of the new fuel efficiency standard is to mandate such an increase in these sales that by 2032, EVs represent 67% of total car sales. The companies making those EVs are now saying this is pretty much impossible.
This is because despite the generous subsidies that the federal government as well as state governments have allocated for EVs, drawbacks inherent in the current EV technology make them a hard sell—and the subsidies won’t be around forever.
EV sales last year hit a record, but towards the end of the year, demand began to wane, triggering a price war among carmakers. That war has failed to prompt a strong rebound in sales growth, however, at least for the time being. Issues like insufficient charger infrastructure and insurance continue to plague the industry. And the Chinese are coming.
European carmakers sounded the alarm late last year, complaining that unless governments do something to protect them, low-cost Chinese EVs might destroy them. But low-cost Chinese EVs are coming to North America, too, as suggested by a report in the Wall Street Journal that said EV major BYD was looking at building a factory in Mexico.
So, not only are U.S. and international carmakers being pressured into speeding up their switch to an all-EV lineup—a very costly switch—but they are now facing competition from much cheaper Chinese EVs. Of course, the last problem could be dealt with by imposing protectionist tariffs, which are trendy these days but the other problems would be tougher to solve. And the U.S. has a no-tariff trade deal with Mexico.
Charger infrastructure needs to expand really fast to stimulate demand for EVs—but there is not enough private capital willing to risk it, given that the risk-takers would have to wait quite a while to see any returns unless people are literally mandated to buy EVs.
The cars themselves really need to become cheaper, on a no-subsidy basis. For years, EV commentators have been saying that cost parity with Ice cars was just around the corner, and yet even today, it remains around the corner—except in China.
Big Auto, which so recently celebrated the push to an all-electric future, is having second thoughts, and they are not pleasant thoughts. And Biden needs to make them happy again because there are a lot of voters employed by Big Auto.