TL/DR –
The Trump administration’s policies have impacted the economics of electric vehicles (EVs) in the US, making it harder for car manufacturers to compete. Trump has relaxed emissions standards, removed fines for breaching fuel-economy standards and allegedly presented false information about the Inflation Reduction Act. Ford, which was losing $5 billion a year on its EVs, has decided to shift its emphasis to hybrids, ultimately fragmenting global platforms and supply chains for EVs.
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Trump’s Policies Impacting Economics of US Electric Vehicles
As a critic of climate change, former President Trump has eased emissions standards and removed fines that car manufacturers faced for breaching fuel-economy standards. He falsely described the measures within the Inflation Reduction Act as a “mandate” to force US consumers to buy electric vehicles (EVs). His policies have further complicated the already challenging economics of US EVs.
US automakers have struggled with the economics of EVs and their slower adoption compared to other markets. For instance, Ford reported a loss of $US5 billion yearly on its EVs. The situation has worsened in recent months as EV sales in the US plummeted about 40 per cent in the aftermath of the withdrawal of tax credits at the end of September.
Ford Adapts to Market Changes
Faced with such market dynamics, Ford has been compelled to adjust its strategy. It renounced its plan for larger EVs that would have directly competed with China and instead focused its efforts on hybrids. The change in direction was inevitable given the higher uptake of hybrids by US customers compared to pure EVs.
“The market had really changed in the past few months and Ford had responded to that customer-driven shift in the market,” Ford’s Jim Farley was quoted as saying. The company’s future plans are to manufacture a combination of internal combustion, hybrid, and (smaller) pure electric-powered vehicles. The share of non-traditional powertrains is expected to rise from 17 per cent today to 50 per cent by 2030.
Impact on Global EV Market
The shift in strategy by US manufacturers and the influence of Trump’s policies will likely lead to a fragmentation of the previous approach of using global platforms and supply chains. This move will inevitably result in the loss of the scale benefits of having global EV platforms and supply chains that leverage off a vast domestic consumer base in the US. It signals a clear withdrawal from the global EV market by US manufacturers, leaving the field for Chinese companies with their cheap EV exports.
The EU has also encountered challenges in the economics of EVs. Despite building some tariff barriers against Chinese imports, the bloc has had to acknowledge the potential for its automobile industry’s destruction due to slower-than-anticipated consumer adoption of EVs and its own climate-related rules. Consequently, the EU is considering dropping its 2022 introduced requirement that all new cars and light-utility vehicles manufactured in the bloc had to have zero emissions by 2035.
Challenges for US and European Manufacturers
Without the advantage of global scale and volumes, US and European car manufacturers may struggle to compete with their Chinese counterparts, who benefit from a vast domestic customer base and government incentives. In the EU, EVs account for about 25 per cent of new vehicle sales. However, in the US, EV sales were only about 10 per cent before Trump’s policies cut this rate in half.
“The Trump administration has effectively made the economics of US EVs, which were already fragile, impossible,” warns a market expert. This situation leaves Western automakers vulnerable in the longer term as the range of EVs keeps extending and charging station networks expand. While there is a consensus that EVs are the industry’s future, the transition path for legacy car makers is financially non-viable, especially without the generous government-funded incentives and coercive emissions and fuel standards that were in place before Trump’s return.
For as long as the US tariff wall against Chinese EVs and Europe’s protection for its own vehicle industry remain, the legacy car makers in these economies can survive and generate decent profits from their internal combustion and hybrid vehicles. However, this could make them vulnerable to a purely EV future dominated by Chinese manufacturers.
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