The Big Three tell Biden his fuel-economy rules will ‘devalue’ their EVs

On Sept. 14, the day before the United Auto Workers launched its strike, the Energy Department sent letters to Ford, General Motors and Stellantis asking for help understanding “specific challenges” to its proposed rule that would reduce the credits under the corporate average fuel economy (Cafe) standards for producing electric vehicles.

The issue is technical, but bear with us because this is a tale of regulation at crazy cross-purposes. Congress’s 1979 Chrysler bailout required the Energy Department to impute a “petroleum equivalency factor” for EVs they might produce to give Detroit auto makers a means of complying with Cafe standards besides making more fuel efficient trucks.

In 2000 the Clinton Administration sweetened the regulatory subsidy for EVs by assigning them a fuel economy multiplier of 6.67. Ergo, an EV calculated to get 40 miles per gallon would receive credit for 266.8 mpg under the Cafe standards.

Although Congress had limited this multiplier credit to cars that run on biofuels, natural gas and hydrogen, the Clinton Administration said it was only fair to give the bonus to EVs too. Subsequent Presidents kept this EV fillip because it has let Detroit auto makers churn out profitable gas guzzlers while meeting ever-rising fuel economy mandates.

Enter the Sierra Club and Natural Resources Defense Council, which petitioned the Biden Administration in 2021 to scrap the 6.67 multiplier for EVs. They note that its legal justification “is questionable, as the statute expressly provides for different treatment” between electric vehicles and those that run on so-called alternative fuels. They’re right.

But their real goal is to force auto makers to manufacture more EVs to meet Cafe standards, which the Administration has also proposed ratcheting up. “Excessively high imputed fuel economy values for EVs means that a relatively small number of EVs will mathematically guarantee compliance,” they noted.

The Energy Department in the spring proposed to eliminate the 6.67 multiplier while softening the impact with other changes. As a result, a Ford-150 Lightning would only be credited with 67.1 mpg, down from 237.7 mpg. But taken altogether, the Administration’s proposed revisions would in effect mandate that EVs make up 100% of new vehicles by 2032.

Detroit auto makers would be slammed harder than foreign competitors by the regulatory changes because pick-ups and SUVs make up a larger share of their fleet sales. “The average projected compliance cost per vehicle for the D3 is $2,151, while non-D3 auto manufacturers only see an increase of $546 per vehicle,” the Big Three recently told the Energy Department.

They add that the proposed rule would “devalue” their EV investments. This gives away that complying with government mandates, not satisfying consumers, is their chief preoccupation. GM’s strategy has been to produce just enough EV pick-ups to meet the Cafe standards. But under the Energy Department’s proposal, it could make more sense to pay the government penalties than to increase production of EVs that don’t sell. This may be why GM is now throttling EV production, as Ford has also done.

Unrealistic fuel economy standards combined with inflated credits for EVs have let auto makers pretend that their cars are more efficient than they are. It’s nice that the Administration is showing concern about the costs of its EV mandate, but it would be far better if it set fuel economy rules that were realistic and honest.