In 1890, William Morrison invented the first successful electric car in the United States. His goal was to create an alternative to gas-powered internal combustion engines by using electricity as a clean power source for vehicles. 134 years later, his goal has become an official rule.
On March 20, 2024, the U.S. Environmental Protection Agency (EPA) announced a new rule that will affect the auto industry in a big way. We’re going to break down the new rule and the impact it will have on the automotive industry.
What is the New EPA Electric Vehicle Rule?
The new EPA electric vehicle rule requires that the majority of new 2027 model passenger cars and light trucks sold in the United States are all-electric or hybrids by 2032. Automakers will need to sell at least 50% plug-in hybrids and EVs by 2030 to meet requirements. If they don’t meet these requirements, the company could face financial penalties. (and they will disappoint the spirit of William Morrison, leading to his ghost haunting their dealership.)
What is the Goal of the New Rule?
When the first electric vehicle was introduced, its goal was to use clean energy to power cars and protect the environment. This new rule is set to take that goal to another level. The EPA’s goal is to cut down U.S. greenhouse emissions by 2030 and eliminate them by 2050. This is part of President Biden’s plan to reduce global warming, with his overall goal being for half of all new cars and trucks sold in 2030 to be zero-emission.
According to the official press release from the US Environmental Protection Agency, “These standards will avoid more than 7 billion tons of carbon emissions and provide nearly $100 billion of annual net benefits to society, including $13 billion of annual public health benefits due to improved air quality, and $62 billion in reduced annual fuel costs, and maintenance and repair costs for drivers.”
This basically means that the end results of the new rule will be:
- Less carbon dioxide in the atmosphere (which will reduce global warming)
- Potentially reduce respiratory diseases caused by carbon dioxide in the atmosphere
- Less money spent on fuel
- Less money spent on repairs
How Will This Rule Affect the Auto Industry?
Thinking of how 50% of all vehicles will become electric or hybrid in a few years makes you wonder how different the auto industry will be. Here are 4 factors that will be affected by this new rule:
- Environment
- Supply and demand
- Employment
- Manufacturing costs
Environment
The shift to EVs will lead to a large reduction in greenhouse gas emissions and other pollutants that enter the air through internal combustion engines. By reducing emissions in the atmosphere, this creates cleaner air and can potentially decrease respiratory problems caused by polluted air.
Supply and Demand
If we’re following the new EV rule, supply and demand for traditional vehicle components may decline, while supply and demand for EV components will increase.
Supply:
- Increased supply of electric vehicles
- Increased supply of batteries
- Increase supply of charging stations
Demand:
- Decreased demand for internal combustion engines
- Decreased demand for transmission components
- Decreased demand for exhaust systems
Employment
As the auto industry will shift from traditional vehicle manufacturing to EV manufacturing, this results in both job opportunities and job losses.
The increase in electric vehicle demand can lead to job openings related to battery production, EV assembly, and the production of EV-specific components. Unfortunately, this could lead to a percentage of mechanics and technicians who specialize in traditional vehicles losing their jobs.
Manufacturing Costs
While electric vehicles consist of less components than internal combustion engine vehicles, their manufacturing costs are higher. Traditional automakers may face increased manufacturing costs when investing in EV production, EV technology, and battery production.
When Will the New EPA Electric Vehicle Rule Go Into Effect?
The new EPA EV rule was finalized on March 20th, 2024 and will take effect in 2027. There is no specific month or day announced, but it will start with 2027 models and be in effect until 2032.
What is the Auto Industry Saying?
When a new rule is passed, everyone voices their opinion. But just like any new rule, opinions are divided. Automakers like Ford and General Motors, as well as organizations including AAI and UAW, have given statements regarding their opinions of the new rule. Here are a few highlights from each statement:
Ford
“We appreciate EPA’s efforts and collaboration in strengthening greenhouse gas emissions standards in ways that reflect the realities of the EV transition. Ford will continue to lower emissions while offering our customers choices across hybrid, plug-in hybrid and fully electric vehicles that are highly functional and fun to drive.”
General Motors
“GM supports the goals of the EPA’s final rule and its intention to significantly reduce emissions. Although challenging, we believe our commitments and investments in an all-electric future place GM in an excellent position to contribute to the goals.”
Alliance for Automotive Innovation (AAI)
“The future is electric. Automakers are committed to the EV transition – investing enormous amounts of capital and building cutting edge battery electric vehicles, plug-in hybrids, traditional hybrids and fuel cell vehicles that drive efficiency and convert petroleum miles to electric miles. Consumers have tons of choices.”
United Automobile Workers (UAW)
“The UAW has a strong commitment to protecting the environment and fully supports efforts to create a cleaner domestic auto industry. The UAW is proudly leading the fight for a just transition so the shift to electric vehicles truly benefits workers and the environment, not just the auto industry and Wall Street.”
National Automobile Dealers Association (NADA)
As mentioned earlier, opinions of the new rule are divided. While many big members of the auto industry seem on board with the idea, not everyone is on the same page.
NADA posted on their website, “the charging infrastructure is not ready, the current incentives are not sufficient, and high EV prices will price out millions of consumers, particularly low-income Americans, from the new-car market. Our experience working with consumers every day makes us highly skeptical that consumers will adopt EVs anywhere near the levels required in EPA’s finalized rule.”
Along with NADA, 3,000 other automotive dealers signed an open letter to President Biden, asking him to reconsider the rule. The letter states “electric vehicle demand today is not keeping up with the large influx of BEVs arriving at our dealerships prompted by the current regulations. BEVs are stacking up on our lots.”
This means that there are not enough people interested in electric vehicles to meet the EPA’s sales requirement. 3,000 car dealers are already overstocked with EVs, and there are potentially more who are in the same situation or may end up in that situation in the future.
Do I Understand The Importance of The New EPA Electric Vehicle Rule?
Although electric vehicles are commonplace now, car owners and dealers are not so thrilled about the possibility of over 50% of vehicles being electric or hybrid in 3 years. This cuts car buyers’ options in half, as well as leaving dealers with extra EVs in their lot. However, many believe the good outweighs the bad, as the rule could help reduce global warming.
Understanding the importance of this new rule can help you prepare for what’s to come in the next few years.
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