After spending four years living under a Donald Trump presidency, I’m not used to the Environmental Protection Agency showing an actual interest in protecting the environment. That changed this week, and drastically so, when Joe Biden’s administration proposed a host of emissions restrictions on motor vehicles, aiming to increase the proportion of electric vehicles sold in the U.S. Suddenly, the EPA is the EPA again, and it could change American roads not only forever but also in less than a decade.
The proposed regulations would limit the carbon emissions produced by the entire fleet of new vehicles sold by each manufacturer annually, beginning in 2027 and becoming progressively stricter until 2032. If enacted, those limits would reduce the number of gas-powered cars and trucks carmakers can sell, forcing them to manufacture more electric vehicles — many more — to make up the difference. The newly emboldened EPA predicts these rules would increase the number of electric vehicles sold nationwide tenfold by 2032, accounting for nearly two-thirds of all new car and truck sales.
Now, in true American fashion, our proposal lags behind that of the European Union, which plans to have all new cars sold in 2035 onward be 100% electric. The Biden plan also lags behind California’s, which seeks to ban all internal combustion engine sales along the same timeline as the EU’s. But it’s a start and, in many ways, an ambitious one. I know this is true because the major auto manufacturers are already politely bitching about it.
Still, I had questions. Does Big Car really have the operating capacity to meet these mandates? What would an all-electric market look like in this country? Will the restrictions be put into place as is, or will Dianne Feinstein skip out on her daily game of cribbage to ruin it? And, most important of all, will these guidelines f—k over Tesla, which is already seeing its market share — along with its stock price, its showroom prices, its quality control and its CEO’s general sanity — start to slip?
I couldn’t get any answers to these questions from Elon Musk, who has been conspicuously silent on the Biden plan, preferring instead to meme NPR to death over on Twitter. So instead, I went to someone who actually knows what they’re talking about: James Sallee, an associate professor in the agricultural and resource economics department at UC Berkeley. Sallee got on the phone with me the other night and gave me a macro view of what these regulations mean, for both car buyers and manufacturers. Our interview has been edited for length and clarity.
Drew Magary: Do you see these policies growing the larger EV market, to the point where it renders Tesla insignificant, if not dead?
James Sallee: I don’t know about the latter. Some of the extremely high multiples at which Tesla’s stock has traded have always puzzled me a bit, in the sense that they’re justified by saying, “In a world where the entire auto market is electric, Tesla will be worth so many multiples of what it is today,” but all of the major automobile players will be making electric cars that compete much more directly with Tesla.
I think Tesla has great brand equity. I think it has an established track record of building cars that work pretty well, and they’ve overcome all kinds of problems [Note: Tesla currently has a 58% market share of all EVs sold in America]. They’ve thought pretty hard about their supply chain, how to manufacture batteries and where they want to source things from. So I think that, in the short run, an expansion of the electric vehicle market —whether it’s coming from consumer demand, from petroleum prices or from government mandates — is good news for Tesla. But I also think it’s far too simple to suggest that they’ll be able to scale up. The other automakers are already eating into the electric vehicle market and taking it more seriously. I think Tesla will still be in a good position, and they’re still making excellent cars. I’m sure they’ll sell plenty of them, but their market share is surely going to decline, perhaps dramatically.
Magary: What do you mean by “dramatically”? Are we talking down to 20%, even single digits?
Sallee: That’s certainly within the realm of possibility. Tesla basically makes four models, and two of them are variants of each other. The other automakers are already making a bigger variety of cars. But just to be clear, I still think this is good news for Tesla. Increases in demand for electrification are good for people that are currently established and have solved problems in making electric cars, but it is accelerating the degree to which they’re going to face more direct competition in the electric vehicle market. There will be a wide variety of vehicles. There are still some pretty big gaps — it’s very hard to find an electric minivan or seven-seater SUV or things like that — but there’s an increasing variety of sedans at different price points.
The government announcements this week are sure to accelerate the other automakers’ plans. I don’t have a number off the top of my head, but I don’t see any reason to think that Tesla couldn’t be an automaker that has single-digit market shares in the future unless they radically expand the set of products that they offer. [Note: Musk is still intent on rolling out three major new models soon, including a semi, a roadster and the infamous Cybertruck. Perhaps these new regulations will force him to actually make good on his grandiose promises for once.]
Magary: So they could see their market share drastically reduced but still actually prosper quite a bit.
Sallee: Absolutely. Their market share can fall in half, and they can still be selling five times more cars. The bigger question is, will they want to scale? How quickly will they want to scale? It’s not easy to grow.
Magary: Other automakers are already pushing back against their ability to meet these demands by 2032. Just how realistic is it for them to meet these new standards, or can they achieve them and simply don’t want to acknowledge it publicly?
Sallee: Think about it this way: There’s a global pressure on supply chains for batteries. Those batteries are also competing with the need for the same batteries and technology in the power sector, where battery demand is going to go up. So that’s going to be something that’s going to constrain everybody.
But Tesla has a constraint on how many assembly lines they want to operate and on parts sourcing. The other automakers are going to transition existing facilities, existing workers and existing supply chains to service electric vehicles, so I think it’s easier for them to scale up their electric vehicle market share if they’re simply replacing internal combustion engines. It’s not simply a case where Tesla can just multiply by eight or 10 what they’re already doing.
[Note: Just this week, the New York Times reported that sodium batteries, currently being developed in China, could replace lithium batteries down the line for all renewable battery needs. However, since sodium car batteries would be larger than their lithium counterparts, swapping them in would require carmakers to change their assembly line processes.]
Magary: Is it possible that this is actually the start of the Biden administration tightening these regulations? They see that automakers can actually comply with this, and then they try to accelerate the timetable?
Sallee: I don’t know. What I will say is that what they announced is a big leap for the U.S. federal government. It is already the case that many other jurisdictions are on the books as having 0% internal combustion engine target goals in the 2030s. California has a very aggressive, very good plan. That’s highly relevant to what’s going on in the United States. Many European jurisdictions also have fairly aggressive goals on the books. So I think it’s clear that the administration can do this because they feel that the technology is ready and the market is already trending in that direction.
But my guess is that if they wanted to make another move and be more aggressive, they wouldn’t. These things take a long time. They end up in court. I would guess this is the plan for the administration. That’s not from having any direct insight. It’s just from a sense of how hard it is to get these regulations rolling. They tend to review them on a five- or eight-year cycle rather than a two-year one.
The other big thing in here is that the federal government is pushing the medium- and heavy-duty truck market, where a whole lot of greenhouse gas emissions lie, and even more local air pollution lies. I think cleaning up truck pollution is actually a great way to clean up the air in disadvantaged communities, which are disproportionately located by highways, ports and other places where heavy trucks spend more time. That’s an important part of what got released this week. Understandably, a lot of the headlines are about this potential for a transformation in the light-duty fleet — brands recognized by your average household — but I think the heavy truck stuff is big news as well.
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