The Trump administration dramatically rolled back fuel economy standards on Monday, easing Biden-era requirements that were pushing automakers towards selling more EVs. It solidifies a two-track path to the future, where Europe and China aggressively electrify, while America joins Japan and some developing markets in staying hooked on gas.
All of this was avoidable. None of it is surprising. And it leaves big, big question marks about whether American firms can stay relevant globally.
What Changed
For the past decade, regulators in the U.S., Europe, China, Japan, and Korea have steadily tightened fuel economy and emissions requirements, often alongside incentives for zero-emissions vehicles. All of the major auto markets seemed to recognize the importance of decarbonizing and decreasing our reliance on fossil fuels.
In the U.S., this never meant a “mandate” for automakers to primarily sell battery-powered cars. But it did involve high enough fuel economy standards that, for most manufacturers, selling EVs or other zero-emissions vehicles seemed to be the only way to hit them. A slew of federal incentives for clean vehicle factories and point-of-sale incentives for consumers further pushed the market in that direction.
At the same time, California had even stricter rules. The state received a waiver from the federal government to set its own, stricter standards back in the 1970s and had ratcheted up the pressure since. While there was never a federal “EV mandate,” as Trump likes to claim, California required automakers to offer zero-emissions vehicles and increase sales over time. The state enacted legislation to require all new vehicles to be zero-emissions by 2035. Since 17 states and the District of Columbia follow California’s rules, this was a big deal. But the Republican-controlled Congress and Trump administration revoked California’s waiver to set its own rules last year, killing America’s strictest standards.
They have also axed the federal tax credit and federal grants for clean manufacturing projects. Earlier this year, Trump’s Environmental Protection Agency eliminated greenhouse-gas emissions rules for tailpipes, dealing another blow to the clean-car transition.
Until today, another big piece of U.S. vehicle regulation remained, on paper at least. The Corporate Average Fuel Economy (CAFE) standards set increasingly tight fuel economy standards on a fleet-wide basis. The rules approved under the Biden administration set the goal at 50 miles per gallon fleet-wide by 2031, a threshold that would be tough to hit without leaning on EVs. But the revised rules set the target at 34.5 mpg, which is lower than the 2016 requirements.
Today’s rollback is largely symbolic; Congress already took the teeth out of the CAFE rules last summer when it reduced the penalty to automakers for missing the targets to zero.
But the symbolism matters. While the rest of the world is quickly moving to electric cars, American regulators are pushing the other direction, arguing that looser regulations will help drive down car prices and preserve consumer choice. That may be popular in the short term. More and more, though, it seems like America could get left behind.
The World Moves On
China has already largely electrified its passenger car fleet. Sixty percent of cars sold in the country are New Energy Vehicles, which includes EVs, plug-in hybrids, and fuel-cell vehicles. In Europe, purely electric vehicles are now more popular than pure gas or diesel cars. In South Korea, about 20% of cars sold are EVs.
The U.S. is nowhere near that figure. EVs accounted for 5.7% of light vehicle sales in August, according to Cox Automotive, and didn’t even hit 10% market penetration before the tax credit went away. California is closer, with about 19% EV market share in the second quarter, per the California Energy Commission. Industry watchers expect those numbers to grow over time, but far more gradually than they would have under more favorable policies.
What It Means For The Future
China is not slowing down. The staggering number of EV and NEV brands in the country are caught in a price war, dramatically pushing down prices and making EVs far more cost-competitive. But the impact these companies are having outside of China may be even more consequential. Saddled with lots of manufacturing capacity and facing a tough market at home, many are using exports to boost their balance sheets. Their cars can trounce local competitors in markets that don’t have great electric options.
We’ve already seen that play out in Europe, where Chinese brands now outsell Japanese ones. More and more models arrive every day, and even with tariffs to level the playing field, they’re quickly snapping up market share from local competitors. As European brands struggle at home and watch their businesses collapse in China—partially because their EVs can’t match Chinese ones—it looks like a warning against not taking the EV transition seriously enough.
American brands are protected for now. It is effectively impossible to sell a Chinese EV here, at least for now. But that doesn’t mean U.S. automakers are completely insulated. They will soon face tougher competition from European, Korean, and Japanese automakers, hardened as they are from duking it out with Chinese brands all over the world.
Emboldened by shifting policies, American companies, meanwhile, are focused on other things. They’re launching the largest mass-market V-8 truck engine ever. They’re retooling EV factories to focus on gas SUVs. They’re putting the Hellcat motor wherever they can fit it.
That may make them money today. But in a world that is rapidly moving to electric vehicles, American automakers risk becoming old-school proprietors of yesterday’s tech.
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