Why are traditional car manufacturers investing hundreds of billions of dollars in electric vehicles—a technology that promises better environmental than financial returns? Regulation is part of the answer, but not from Washington.
The U.S. Environmental Protection Agency proposed new emissions rules on Wednesday for model years 2027 through 2032. Among the headlines was a high anticipated level of EV sales. While the rules are based on tailpipe output of harmful gases, and manufacturers can choose to meet them with whatever technologies they like, one possible course would involve EVs accounting for roughly two-thirds of total light-vehicle sales in the 2032 model year, the EPA said.
This might be more than most mass-market manufacturers are targeting now. In 2021, when President Biden tightened the EPA rules for the model years through 2026,
and
agreed to a “shared aspiration” to make EVs 40% to 50% of their output in 2030. And unlike the EPA’s calculations, those numbers included plug-in hybrids, making them easier to hit.
But U.S. auto stocks haven’t moved much since reports of the new EPA rules emerged over the weekend. Is this a mistake, given the cost of accelerating EV investments?
After all, stricter emissions regulations have had a decisive impact on the industry in Europe. When
diesel fraud was uncovered in 2015, consumers turned away from the fuel, which comes with higher particulate but lower carbon emissions. That left manufacturers with little choice but to embrace EVs as a way to hit regulatory targets.
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These have only tightened since. The European Union is moving toward a ban of gas engines by 2035, albeit with a carve-out negotiated by Germany for those driven with carbon-neutral synthetic fuels. The U.K. is even more aggressive, targeting a ban in 2030, with an exception for…
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