Back in 1975 as a result of the Arab Oil Embargo, the U.S. Congress passed the Energy Policy and Conservation Act: a legal framework designed to increase energy production and supply, reduce energy demand and improve energy efficiencies of everything from cars to home appliances and equipment.
As part of that act, the Corporate Average Fuel Economy (CAFE) standards were born, requiring automakers to ensure that the average fuel economy of all passenger cars, light trucks and medium-duty passenger vehicles produced by each automaker met increasingly tough fuel economy standards. In the 40 years since the act passed, subsequent legislation has tightened CAFE standards, adding new ways to measure fuel economy and driving the average fuel economy of new cars ever-higher.
With CAFE standards pushing the limits of conventional internal combustion engine vehicle design and forcing automakers to use smaller, 4-cylinder engines in place of throaty V-6 and V-8 options, automakers have spent billions of dollars to date in their attempt to lobby Congress to ease the regulations. Some auto industry executives even claim the automotive industry is at risk of financial ruin, forced to spend billions of dollars to develop new drivetrains just to meet CAFE standards.
But while the majority of automakers are hoping for a change of heart in Congress, Tesla Motors [NASDAQ:TSLA] is readying its own legal team to make the case that the U.S. government needs to make its fuel economy targets more stringent.
As The Wall Street Journal reports, Tesla Motors will be making its case for keeping CAFE standards as they currently stand, or making them even more stringent, increasing the current CAFE target of 54.5 miles per gallon by 2025.
It will be doing battle directly with automakers like General Motors and Toyota, both of which are said to be readying arguments for relaxing current CAFE standards ahead of a federal review of CAFE targets scheduled for 2017.
As The Wall Street Journal notes, both companies have enjoyed a recent sales bloom for large SUVs and pickup trucks in the U.S., driven in part by low gas prices in the past twelve months or so.
They argue, as most other automakers do, that the targets are just too high to meet — and that car buyers aren’t interested in affordable small cars with small-capacity engines or expensive plug-in or hydrogen fuel cell cars with limited range.
Dairmuid O’Connell, Tesla’s vice president of development, disagrees. Planning to argue with auto industry executives in Michigan this week that automakers are capable of meeting regulations for fuel economy, he’s adamant that more could — and should be done to improve overall vehicle efficiency.
“We are about to hear a lot of rhetoric that Americans don’t want to buy electric vehicles,” he told The Wall Street Journal. “From an empirical standpoint, the [regulations] are very week, eminently achievable and the only thing missing is the will to put compelling products on the road.”
Yet there is a change in Detroit and elsewhere. Automakers who once dismissed Tesla as a startup company with no future prospects are now taking note. Some are even beginning to plan their own cars to compete with the Californian firm.
Eighteen months ago, Tesla was the only automaker planning to bring a mass-market, long-range affordable car to market. Now Nissan, GM, and Volkswagen are all promising the same thing in short order, while BMW, Audi and Porsche are rumoured to be working on their own all-electric crossover SUVs to cross-shop against Tesla’s soon-to-launch Model X.
While those companies are working hard to ensure they don’t lose any more custom to Tesla however, they’re also working a two-pronged approach with Congress, lobbying the EPA to change CAFE standards to their advantage.
Arguing that customers aren’t buying the vehicles they’re making, their lobbyists say more assistance will be needed before current CAFE targets are met.
“Auto makers are offering consumers more choice than ever in energy-efficient vehicles, but that’s not enough,” said a spokesperson for the Alliance of Automobile Manufacturers, a company working to represent more than a dozen automakers including GM, Toyota and Ford on the matter in Washington, D.C. “We need consumers to buy them in high volumes to meet the steep climb in fuel-economy standards ahead.”
As those who watched the seminal film Who Killed The Electric Car? will know however, profit-driven automakers keen to protect the interests of their shareholders have been in a similar position before. As the film recounts, GM, Ford, Honda, Nissan and Toyota successfully lobbied the Californian Air Resource Board to lower repeal the Zero Emission Mandate with the argument that consumers weren’t interested in plug-in vehicles and the vehicles themselves were too costly to produce.
As soon as the standards were relaxed, so too was the push towards fuel-efficient vehicles by the automakers.
This time, we’re confident that the auto industry isn’t after killing the electric car altogether. Indeed, given the sales figures to date and the rising market share, doing so would be an act of suicide given the existence of Tesla, an automaker willing, ready and able to continue making plug-in vehicles. Indeed, it’s in Tesla’s interests for the CAFE standards to increase, since it gives it a market advantage other automakers can’t yet match.
Producing the fastest full-size performance sedan on the market today and some of the most advanced cars in the world, Tesla can’t be ignored — even if the auto industry succeeds in its attempts to lower CAFE standards.
But given President Obama’s recent unveiling of a tougher climate change plan to lessen or halt the seemingly impossible march of manmade global warming, we suspect automakers won’t have as easy a time with the EPA as those automakers did back in California more than a decade ago.
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