WASHINGTON (Bloomberg) -- With U.S. sales of plug-in electric vehicles on pace to reach half of President Barack Obama's goal, regulators are following customers and automakers to vehicles powered by other fuels, from hydrogen to diesel.
California, which leads 10 states that require automakers to sell zero-emission vehicles, may alter its system of tradable credits to stop favoring plug-ins over hydrogen-powered cars. That would hurt Tesla Motors Inc. while helping Honda Motor Co.
Obama, who touted electric cars in his first State of the Union address and gave $5 billion in U.S. loans, grants and tax breaks to spur their development, hasn't mentioned them in public since July. The administration has halted loans for their development and reversed moves to de-emphasize fuel cells.
"I don't think they should just pick technologies that they say or feel may be better," said Audi of America President Scott Keogh, who's seeking more favorable regulatory treatment for clean diesel.
Automakers that sell vehicles in the United States must double their vehicles' average fuel economy by 2025 under rules Obama adopted. The target is considered impossible to achieve just by improving the gasoline engine.
Auto-industry executives surveyed by Booz & Co. and Bloomberg LP predicted vehicles running on electricity and other alternative powertrains would account for 20 percent of sales by 2020 -- unless the government stopped its support, in which case their predicted share fell to 12 percent.
Obama in 2009 set a goal of having 1 million electric vehicles on U.S. roads by 2015.
Through this year, about 95,000 plug-ins will have been sold, said Alan Baum, an analyst at Baum & Associates in West Bloomfield, Mich. He forecasts sales to pass 500,000 in 2015.
The Energy Department last made a loan for electric-vehicle development in 2011. While Tesla repaid its loan nine years early, an award to Fisker Automotive Inc. became a talking point for Republicans during the 2012 presidential campaign.
The defaulted loan was put up for auction in October after Fisker stopped production and failed to find a buyer.
Early in Obama's presidency, then-Energy Secretary Steven Chu questioned the merits of hydrogen-powered cars and cut funding for fuel-cell research.
Administration officials began praising fuel cells in 2012 and recently announced $4 million in awards to develop better hydrogen storage systems that would benefit autos.
California in September passed a measure to fund at least 100 hydrogen fueling stations as part of its clean-vehicle plans.
"They're broadening their scope," analyst Baum said of regulators. "It's kind of an all-hands-on-deck strategy, which includes the internal combustion engine, too."
California's proposed revisions would cut the Zero-Emission Vehicle, or ZEV, credits Tesla gets for its electric Model S sedan by as much as 40 percent from 2015.
The state's Air Resources Board on Oct. 24 deferred a decision on the matter until next year.
"I have always felt that there was a hard-core enthusiasm for fuel-cell vehicles among key regulators that was in no way justified by the commercial viability or technical progress" of fuel-cell vehicles, said Diarmuid O'Connell, Tesla's vice president for business development.
He criticized bonus credits for fast refueling "designed specifically to reward" fuel-cell vehicles and state funding for hydrogen filling stations.
"Technology neutrality ought to be the standard by which the ZEV regulation and other vehicle standards are written and enforced," O'Connell said. "Instead, and with particular reference to hydrogen technology, the bias seems to make sure that hydrogen technology can keep up with the fast-moving market development of EVs in the tortured hope that both technologies will flourish in equal measure."
Tesla's sales of emission credits fell to $10 million in the third quarter, from $51 million in the second quarter and $68 million in the first quarter, the company said Nov. 5. Total third-quarter revenue was $431.3 million.
Changing the credit formula may help Honda's hydrogen-powered FCX Clarity, of which only six have been sold in the United States this year through Oct. 31.
The shift also favors General Motors, which hedged its bets by investing in hydrogen technology while producing this year's best-selling plug-in car in the U.S., the Chevrolet Volt.
Honda and GM, the top-ranking holders of fuel-cell patents filed between 2002 and 2012 according to the Clean Energy Patent Growth Index, in July announced a partnership to develop a fuel-cell and hydrogen-storage system.
Toyota Motor Corp. and Hyundai Motor Co. are both planning new fuel-cell offerings by 2015.
Robert Bienenfeld, senior manager of environmental and energy strategy at American Honda Motor Co., said the company has worked on hybrid, plug-in hybrid and fuel-cell options as well as improving gasoline engines and aerodynamics.
"The challenge for automakers is to find the right balance between meeting social values like lower carbon transportation and finding the new values that customers will appreciate and enjoy," he said.
German automakers including Volkswagen AG's Audi unit are pushing to change the U.S. Environmental Protection Agency mileage formula for showroom window stickers and fuel-economy rule compliance, and to end the 6-cent-a-gallon difference in U.S. taxes between diesel fuel and gasoline.
The formula, Keogh said, favors gasoline cars over diesel because it assumes more city than highway driving. Diesels get maximum efficiency on the highway.
Diesel is about one-third more fuel-efficient than gasoline in comparably sized vehicles, according to the U.S. Energy Department.
Changes to engines, the advent of ultra-low sulfur diesel and treatment of tailpipe exhaust mean today's diesel cars aren't the ones drivers remember from 40 years ago.
"If you're referring back to the 70s and diesel products that GM launched, it's not the case anymore," Audi's Keogh said. Half of Audi's A3 Sportback purchases in the United States are diesel, as are about a third of the Q7 SUV sales, Keogh said.
The automaker's U.S. advertising features its diesel models and pokes fun at diesel's old image as a dirty fuel only for truckers.
While BMW AG is introducing its first plug-in electric in the United States for 2014, it's also working to boost diesel sales and sees hydrogen as "one of the technologies for the future," said Manuel Sattig, project manager for BMWi.
"We have every base covered," said Jacob Harb, head of BMW of North America electric-vehicle operations and strategy. "There's no silver bullet."
In September, the most recent month available, 9 percent of customers visiting the auto-information website Edmunds.com considered a non-gasoline vehicle.
Hybrid-electrics such as Toyota's Prius were the most considered at 4.1 percent, followed by diesel with 2.1 percent.
Only .8 percent of customers shopped for a plug-in electric hybrid while 1.9 percent looked at fully electric cars. Consideration on the website is higher than actual sales, Edmunds analyst Jeremy Acevedo said.
"Continued support through government policy as well as automakers developing the technology and getting it out there on the road is going to help the transition," said Don Anair, Union of Concerned Scientists Clean Vehicles Program research director. "But it's not going to happen in two or three years."
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