New EPA rules will upend industry as automakers’ EV plans are too low

The US Environmental Protection Agency is set to announce sweeping new EPA rules on Wednesday intended to bring EV market share to ~60% in the US by 2030 and 67% by 2032. The rules are a big step forward for electrification, and represent an improvement from President Biden’s previous commitment of 50% electric by 2030. But it’s also far ahead of what many automakers are planning, leaving millions of EV sales up for grabs come 2030.

While the new rules have not yet been finalized (or even formally announced), the expectation based on sources within the EPA is that it will set emissions levels low enough that two thirds of vehicles would need to be electric by 2032.

The rules would bring federal guidelines close to California’s new guidelines, though it looks like this won’t quite harmonize them. California’s “Advanced Clean Cars II” (ACC2) regulation aims for 68% EV by 2030 and 82% by 2032, significantly more than the rumored EPA rule.

The California rule also bans sales of combustion-only cars in 2035, though EPA’s rules don’t seem to look that far into the future yet. California deliberately set its goals a little lower than what the state itself could achieve, in the hopes to bring other “section 177” states, and perhaps even the federal government, onboard. It wanted these rules to be “a floor, not a ceiling.”

Aligning minimum requirements would be important, as automakers have long stated a desire for a unified set of guidelines across the country. Automakers had this wish granted in 2012 when President Obama (with then-VP Biden) and the state of California agreed on emissions rules. But then they couldn’t help themselves and lobbied the EPA to fracture the rules, and later begged for a reversal of the fractured 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 align. Which begs the question: could the auto lobby even ask EPA to strengthen these rules, to align them with California, in keeping with their previously-stated desires for a unified regulatory scheme? It would be consistent with their stated goals anyway… but perhaps don’t hold your breath (unless a high-emitting gas car is going by, then you probably should hold your breath, at least until the smog clears).

All that said, the auto industry’s biggest lobbying organization did most recently support the government’s 2023-2026 emissions standards, so let us hope that they are turning a new leaf.

The proposed rules also lag behind public opinion. According to a recent poll, a majority of US voters support a requirement that 100% of new cars sold be electric starting 2030. The idea was “strongly” or “somewhat” supported by 55% of respondents, and opposed by just 35%. This is one reason we ask “why not sooner?” about a 2035 target for 100% electric car sales.

Automakers’ current 2030 commitments are too low

Until we see these new EPA rules, we can compare each automaker’s current stated production plans against what the EPA seems to be proposing, and see how things might shake out in the next decade based on those commitments. For the final column, we’ve multiplied current annual US sales by the company’s stated 2030 EV sales percentage (US where possible, global for companies that haven’t announced a US-specific goal). Some brands will sell more or less cars by then, and the market may grow or shrink as a whole, but we should be able to learn some things with rough math:

Several smaller companies, or sub-brands of the above companies, have targeted 100% electric by 2030. Alfa Romeo, Lotus, Bentley, Cadillac, Mini, and Rolls-Royce have all committed to eliminating 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 rumored new goals.
• BMW is in the same ballpark with its >50% commitment, and a few other brands aren’t lagging too far behind with their 50% commitments.
• Kia makes good EVs. How is it in the second or third worst place on this table?
• Automakers’ current 2030 commitments only account for about 44% EV sales, averaged/weighted for their current sizes. This means overall EV commitments would need to increase by about a third to meet the Biden admin’s reported 60% goal.

But here’s what I would consider the most important takeaway: there is a gap of 1.7-2.5 million cars just waiting to be filled. Those are cars that need to be electric in order to meet the EPA’s rumored guidelines, and which automakers are currently not planning to make.

The auto industry is up for grabs

So, someone is going to have to build those cars. Who’s it gonna be?

A full car development cycle takes about 7 years. So if automakers want to get ready for these new EPA rules, they need to start today, if they haven’t already.

Some automakers may adopt a wait-and-see attitude, or may hope for legal challenges or an eventual softening or reversal of the regulation. But those automakers will be ceding time and leadership to a number of companies who would be happy to gobble up those millions of vehicle sales.

Those companies are listed at the end of the table: the EV brands. The likes of Tesla, Rivian, Polestar, and Lucid may not all have the capacity yet, but they’re eyeing this blue ocean, this sea of vehicles that have to be sold but which nobody seems to want to sell, and actively positioning themselves to grab as many of those free sales as possible. They’re not just starting their 7-year development cycles now, they already started them years ago. They won’t just be ready in 2030, they’ll be on the move well before then.

And even BYD and NIO, or other Chinese brands, may make inroads into the US market for the first time ever due to this not-sufficiently-tapped demand. Americans are wary of Chinese cars, but they were wary of Japanese cars, too, until a crisis in the 70s forced a realignment of the auto industry. And it certainly seems like a realignment is due to happen now.

But they won’t just grab those free vehicles, they’ll also eat into the incumbent automakers’ sales. We’ve seen this happen in every segment that Tesla goes into – incumbent automakers’ ICE sales go down in proportion to Tesla’s sales going up.

So unless automakers want that to happen, they better ratchet up their 2030 goals. And they better do it right now, not in a few years while they wait to see if these rules get challenged. We should see a lot of announcements in the coming weeks, if automakers know what’s good for them.

Are the new EPA rules achievable?

EV sales have grown quite rapidly for the last decade. In 2013, the first year that Tesla Model S sales started in earnest and when Nissan Leaf sales rose sharply, 47k EVs were sold in the US. In 2022, 762k EVs were sold. Using just these 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 need to grow EV sales at a compound annual growth rate of 34% between now and then – a similar growth rate to what we’ve already seen. So these EPA numbers are attainable, if we continue efforts at this rate.

Of course this will take a lot of investment, supply chain work, and deployment of chargers and other associated laws and regulations even down to the local level in order to prepare the country for the shift to electric cars. But many of those investments are in the process of being made by the Biden administration, through allocation of funds from the Inflation Reduction Act, and states and cities have slowly been removing roadblocks to charger installation as well (e.g. through Right to Charge).

The EPA move isn’t being made in a vacuum, and while it’s a step further than the early ambitions of the administration, work has been done and the market has evolved since that early executive order. With EV demand through the roof and so many new investments into EV production, it looks like the administration seems confident that these targets are achievable.

Besides, these targets are necessary. The IEA says that all new passenger car sales need to be electric, globally, by 2035, if we’re to avoid the worst effects of climate change. So there’s really no question over whether we should do this, or whether we can. We have to, so we better figure out a way to do it, because this is not something we have a choice over.

And while many automakers will complain about how hard it is, perhaps a change in perspective is warranted: electric cars are coming, and automakers who don’t shape up will be caught with their pants down, even moreso than they already have been. A swift kick in the rear by regulators might just force them into action they never would have taken on their own.

And as customer desires continue to shift more towards better, cleaner vehicles and sales of worse, dirty vehicles dry up, laggard automakers will find themselves in a better situation than if they had just sat there twiddling their thumbs, hoping for it all to pass.

Besides, we’ve seen EV goals get exceeded elsewhere. Norway is handily meeting even the most ambitious goals in the world, The UK has pushed forward its timeline (twice), and in China some gas cars are already becoming valueless. There are plenty of examples of EV adoption happening faster than expected. So maybe a can-do attitude would behoove us, here in America… where we used to value that sort of thing.