Biden's Emissions Rule Leaves Carmakers No Room for Errors

An elderly buddy recently told me, somewhat depressingly, that as you get older, the years pass so quickly that they feel like months. If the Biden administration's planned tailpipe pollution restrictions go into force, automakers may feel the same way about the coming decade.

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To achieve the projected reductions, the Environmental Protection Agency anticipates that 67% of American car sales would have to be electric by 2032. Assuming a successful year for the car sector, it means delivering about 11 million EVs.

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In the auto business, nine years is nothing — carmakers create new models for six-year life cycles, so that's not even two product cycles. To increase EV market share from roughly 5% now to two-thirds, more new battery manufacturing and assembly facilities must be developed, charging infrastructure must be expanded, and consumers who are satisfied with their current cars must be persuaded to convert.

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This is a pretty bold proposition. While it is possible, it is dependent on certain heroic assumptions and allows little room for mistakes.

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The cost of EVs will have to come down, which is already happening. Congress and future administrations will have to leave the government incentives under the Inflation Reduction Act mostly alone. And the United States will have to either make friends with China or organize the mining and refining sectors to radically rethink how lithium, copper, nickel, and other commodities are produced.

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There is little doubt that electric vehicles have caught the minds of customers. Tesla's growth rates demonstrate this. While rich buyers and early adopters like their EVs, breaking into the broader market will be difficult. Tesla is another good example in this regard, having had to continuously decrease prices to maintain sales growth.

According to the EPA's plan, it reviewed market share predictions for EVs in the United States ranging from 32% to 50% by 2030, and as high as 67% by 2032.

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Switching consumers will necessitate an improved charging network. Motorists are already concerned about a lack of plugs along roads, so the Biden administration is allocating $5 billion to the project. While this is a welcome improvement, the present infrastructure is spotty at best, with one in every five customers telling J.D. They'd had run-ins with inoperative public charges.

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In terms of how this would affect customers' wallets, the EPA's plan predicts that the average extra cost for all models sold in comparison to the agency taking no action will be only $1,164 per light-duty vehicle. Based on the cost of batteries in comparison to combustion engine powertrains, that appears thin.

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The EPA predicts that by 2032, the average battery pack cost will have dropped by half to around $60 per kilowatt hour. Assuming a 100 kWh battery pack, that's still $6,000 only for the battery pack. According to The CarLab, a consulting group, an internal combustion engine costs around $1,200 per car.

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How will the automaker compensate? If the materials are manufactured in the United States or supplied by its trade partners, the IRA will subsidize $45 per kWh of battery per car. Manufacturers will get around $4,500 in incentives, indicating that the money is available. But what about the minerals?

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China refines 68% of the world's nickel, 40% of copper, 59% of the world's lithium, and 73% of the world's cobalt. According to a Brookings Institute analysis, its supply chain accounts for 70% of cathodes and 85% of anodes. Onshoring and near-shoring are already occurring, but federal and local governments will need to reduce mining and processing rules to make this work.

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Why does the EPA believe that everything will fall into place? The manufacturers' rhetoric may have contributed to the agency's conviction. General Motors has made much of its goal of being all-electric by 2035. Ford has made a similar commitment to Europe by 2030. Mini, Volvo, Mercedes-Benz, and Jaguar have all set comparable targets for the United States.

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This is the issue with press releases. Someone will eventually hold corporations accountable for their claims.

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