Kevin Riddell, Senior Manager, Americas Powertrain

16 July 2020

The outlook on Light Vehicle electrification in the US

This is a highly fluid and difficult time to be forecasting powertrains in the US market. After a long proposal and review period, the new SAFE regulations have finally taken effect, significantly lowering the annual increases under the CAFE rules from close to 5% per year to 1.5% per year. The new legislation also negates California’s ability to separately regulate CO₂ allowed by waiver from the Clean Air Act, under the One National Program. For a couple of years, we have been forecasting an expectation that the original standards until end-2025 would be relaxed slightly during the re-evaluation period, down from the roughly 5% increase per year to a 3-4% yearly rate. We maintain this mid- to longer-term assumption, albeit while recognising that significant changes are possible. Under the new laws, OEMs will at least have a short reprieve compared with the previous 2021 model-year deadline that marked the start of tougher annual targets.

We continue to monitor two primary issues: the lawsuit brought by the states, and the November presidential elections. The former seems to have a reasonable chance of succeeding and at least partially reversing the SAFE legislation. On the flipside, it may also potentially drag on for an extended period, making mid- to long-term future planning difficult. The latter presents a significant uncertainty. Were Joe Biden to be elected, he would likely try to reverse the changes implemented by the current administration, given his previous support for tougher standards. A Biden presidency in 2021 could lead to a faster resolution of the lawsuit between the states and the EPA/NHTSA. It is still possible that these may be delayed slightly to give the industry time to recover from the ongoing economic effects of the pandemic. In fact, some OEMs are prioritising internal BEV programmes and making financial cuts in other areas during the virus crisis.

Over the past couple of years, as it looked increasingly less likely that California would retain its ability to regulate Light Vehicle CO₂ standards, other states started looking at adopting the Californian regulations – both CO₂ and ZEV. As such, if California is able to retain this regulatory authority, 35% or more of US Light Vehicle sales could occur in ZEV states by circa 2024, instead of 25-30%, thus boosting overall ZEV fleet sales rates.

If the SAFE standards are ratified and President Trump is re-elected, our forecast will be cut significantly. We would expect to see sales of the remaining compliance cars on the market end soon. PEV sales would certainly slow down, but would not just fall off a cliff. Even under the new requirements, the administration has not indicated plans for changes to the national plug-in vehicle tax credits. So far, only Tesla and GM have reached the sales limits for the credit. Individual state-level incentives would also continue. As a result, sales will soften, but not stop entirely.

VW, BMW, Ford and Honda have agreed with California to continue meeting a slightly relaxed fuel economy/CO₂ standard until the end of 2026, irrespective of the outcome of the SAFE trial, so electrification expectations from these OEMs may see only minor revisions. Furthermore, many automakers are already planning to expand advanced electrification globally. A prime example is Volvo’s global push to standardise 48V across all its products over the next few years. Toyota also continues to add hybrid options to existing products and has been actively boosting hybrid sales throughout the Americas in recent years. Indeed, in many countries, Lexus models are transitioning to hybrid-only lines.

Despite these unfolding changes, the US remains an attractive destination for PEV sales. The charging infrastructure continues to develop, aided by the Volkswagen Diesel Settlement and the expansion of the Electrify America network. With ample engineering talent, from Silicon Valley to Detroit, many BEV startups are based in the US, with Workhorse, Lucid and Rivian being prime examples – all of which have been lifted by Tesla’s success in helping shape and grow the industry on a global scale.

And while the road ahead for EV sales is undoubtedly riddled with challenges over the coming months and years, the US will continue to play a pivotal role in the development of the global EV industry.


Lexicon of Terms:

SAFE: Safer Affordable Fuel-Efficient Vehicles Rule for Model Years 2021-2026

CAFE: Corporate Average Fuel Economy

EPA: Environmental Protection Agency

NHTSA: National Highway and Traffic Safety Administration

ZEV: Zero-Emission Vehicles

PEV: Plug-in Electric Vehicles (PHEVs, BEVs, EREVs)

BEV: Battery Electric Vehicle (e.g. any Tesla model)

PHEV: Plug-in Hybrid Vehicle (e.g. Toyota Prius Prime)

EREV: Extended-Range Electric Vehicle (e.g. BMW i3 equipped with gasoline engine)