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Bulletin

The US Joins the Race to Electrification

Fasken
Reading Time 5 minute read
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Automotive Bulletin

On August 5, 2021, US President Joe Biden announced his bold plan to advance the position of the US in the global race to electrify vehicles. The plan was said to be designed to lower pollution and tackle the climate crisis while saving consumers money, dramatically strengthening American manufacturing, and out-competing China. The President acknowledged that despite the fact that the US pioneered electric vehicle technology, it lags considerably behind other countries in the manufacture of electric vehicles and batteries, particularly China.

The President signed an Executive Order declaring that 50% of all new vehicles sold by 2030 will be zero-emission vehicles, consisting of battery electric, plug-in hybrid electric, and fuel cell electric. The Environmental Protection Agency and US Department of Transportation will also tighten fuel economy and emissions standards for cars and trucks. Reversing President Trump’s relaxation of fuel efficiency standards, new vehicles will be mandated to emit 10% less greenhouse gas emissions compared to the previous year from 2023 onwards, with a further 5% reduction every year through 2026. The US estimates these changes will result in a reduction in carbon dioxide emissions of two billion metric tons, as well as savings of 200 billion gallons of gasoline.

The President announced the following investments to support the proposed changes: (1) a national network of electric vehicle charging stations; (2) consumer incentives to encourage the purchase of electric vehicles; (3) innovation in the next generation of clean technologies; and (4) incentives to expand the domestic manufacturing and parts supply chain. 

Support from the Automotive Industry

Representatives of Ford, General Motors and Stellantis were present at the televised announcement and jointly announced their “shared aspiration” to achieve sales of 40 to 50% of annual US volumes of electric vehicles by 2030, a dramatic increase from the current situation. Last year, only 2% of all new vehicle sales in the US were fully electric. Similar goals had previously been announced:

  • GM planned to phase out production of gasoline-powered vehicles entirely by 2035 and has pledged $35 billion to be spent before 2025 to develop electric models
  • Ford began selling an electric Mustang Mach-E this year and plans to add an electric transit van and F-150 in 2022. It also plans to increase its investment in plug-in models to $30 billion, with the goal of having electric vehicles making up 40% of its sales by 2030
  • Kia intends to offer eleven electric vehicles globally by 2026, with an all-electric model expected to ship in January 2022
  • Mercedes-Benz has pledged to invest $47 billion before 2030 to accelerate its research and development of battery-electric vehicles. From 2025 onwards, all newly launched vehicle architectures will be electric-only, and all-electric alternatives will be available for every model the company makes
  • Jeep began selling a plug-in version of its Wrangler earlier this year, and is aiming to sell fully electric vehicles by 2023
  • Stellantis has budgeted more than $35 billion for electrification and software, and aims to have five battery factories in Europe and North America by 2030
  • Honda intends to sell 100% electrified vehicles by 2040

Several other automakers released statements supporting the President’s goal, including a joint statement made by BMW, Hyundai, Honda, Volkswagen and Volvo, as well as statements by Hyundai, Kia, Mercedes, and Nissan. There were also endorsements by the President and CEO of Automotive Innovation and the President of the United Auto Workers who supported the Administration’s bold actions and initiatives designed to increase manufacturing and infrastructure and build consumer demand.

Tesla, accounting for 74% of electric vehicle sales in the US, was conspicuous by its absence during the announcement. Elon Musk expressed his frustration on Twitter, saying that it “seems odd that Tesla wasn’t invited.” When asked about Tesla’s absence, the White House Press Secretary noted that Ford, GM and Stellantis are the three largest employers of the United Auto Workers, leading some to infer that Tesla’s absence was related to its efforts to resist unionization.

Reaction from Other Stakeholders 

Reaction from other stakeholders was generally positive and supportive. However, a number of stakeholders have raised concerns that the measures are voluntary and not aggressive enough.

The Directors of the Safe Climate Transport Campaign and the Consumer Federation of America were critical of the non-binding and voluntary nature of the commitment. Both groups expressed concern that too much trust is being placed in “unreliable carmakers”. They cite what they describe as unfulfilled promises given to President Obama by automakers in 2011 to double the average fuel economy of their vehicles. There is also concern that automakers will be given too much flexibility to comply, as the proposal allows automakers to bank credits earned from surpassing sales goals under the fuel-efficiency requirements in past years.

Given that gas-powered vehicles are the largest source of greenhouse gas emissions in the US, some environmentalists have expressed doubts about the allowance for plug-in hybrids, which have internal combustion engines in addition to batteries. The goal itself is also criticized as lacking in impact – half of the vehicles in the US will still be powered by gas or diesel in 2030, and the proposal will produce only 75% of the efficiency gains that would have come from the Obama-era rules. While the changes will force automakers to produce electric and hybrid versions of their larger gasoline vehicles, critics suggest that, absent a policy directly discouraging gasoline use – for example, a higher federal gas tax – it is unlikely that Americans will see a reduced demand for gasoline anytime soon. They point to the average life span of vehicles being 10 years, which means that the US is likely to still have internal combustion vehicles and gas stations long after 2030.

Fear has also been expressed in some quarters that the momentum driven by the Biden Administration may lead to a strain on automakers that are still predominantly involved in the production of internal combustion engine vehicles. The Director of the Center for Automotive Industry Research at Cardiff Business School has suggested that “[t]he industry may lose control of this transition…and it could be a volatile period.” Fears have also been expressed regarding economic dislocation and job losses for non-electric vehicle manufacturers that are unable to adapt.

Looking Forward

The US has taken a bold step in the transition to clean vehicles. However, as noted in our previous bulletin, "A Bold Step: The EU Accelerates Targets for Zero-Emission Vehicles", other countries are moving faster. Schmidt Automotive Research reported that in the first six months of 2021, 17% of new cars sold in Europe were battery-powered vehicles or plug-in hybrids. The US wants to catch up to China and the EU, but it remains to be seen whether it will have the resolve to win the race or place respectably.

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