ZEV mandates get harder to ignore

Automakers were never enthusiastic about California's stricter air-quality rules, especially the electric-vehicle sales mandates that have been copied by nine other states. Soon, they'll have to work even harder to meet them.

Under California's zero-emission vehicle mandate, a certain percentage of an automaker's sales must be ZEVs. Automakers have been able to use partial credit from sales of hybrids and low-emissions conventional vehicles toward their ZEV quotas. But the regulations are slated to tighten in 2018 in a way that limits the impact of those partial credits and requires more sales of actual ZEVs.

That means that, if anything, automakers will have to be even more engaged in California's complex system of credits and sales-based quotas.

"As we are now closer to 2018, everyone is beginning to see that the mandate is not going away," said Devin Lindsay, IHS Automotive's principal analyst for North American powertrains.

The industry has long bristled at having to meet a layer cake of regulatory regimes in the U.S., especially when it involves selling vehicles on which they're likely to lose money. But as they become more entrenched, the California regulations have challenged automakers to work harder to get competitive EVs to the market.

And the size of the bloc now under the umbrella of California's rules makes it a market that can't be dismissed. The so-called Section 177 states, named for the legislative provision that allows states to adopt California's rules as their own, include big markets such as New York and New Jersey and accounted for 28 percent of new-vehicle registrations in the U.S. last year, according to IHS Automotive data.

That's not to say all automakers are eagerly embracing the opportunity. One particularly outspoken critic has been Fiat Chrysler Automobiles CEO Sergio Marchionne, who famously urged consumers not to buy the Fiat 500e EV, saying FCA loses $14,000 on each one.

This month, he reaffirmed his skepticism about EVs, telling the British magazine CAR: "Why don't I make the iPhone of cars? Because if it looks and smells like Tesla, I don't know how to make that economic model work. ... I'm not even sure you can recover all of your costs -- let alone generate a profit -- through electrification."

For many automakers, the disparity in regulations and California's complex compliance requirements remain an annoyance. Several automakers contacted by Automotive News said the paperwork burden is significant. Mercedes-Benz USA said in a statement: "We support a strong and comprehensive national policy that could erase administrative and logistical burdens."

The dual regulations -- California rules and those for the rest of the states -- tripped up Porsche Cars North America this spring when 2017 Porsche Macans heading for Section 177 states were grounded at U.S. ports for several weeks while awaiting certification from the California Air Resources Board. Meanwhile, the Macan went on sale in the other states.

Customers were "really impatient," Klaus Zellmer, CEO of Porsche Cars North America, said at the time.

But other automakers say they're reconciled to working with two systems. Mike Levine, Ford product communications manager, said working with CARB "is a partnership we value" in raising consumer awareness of EVs.

For example, he said, Ford and CARB have partnered on EV ride-and-drive events for consumers, as well as education programs. Last year, Ford said it will invest $4.5 billion to bring out 13 new electrified vehicles by 2020.

"Our strategy includes steadily growing sales of electrified products across the country over the next several years," Levine wrote in an email.

Despite the disparate requirements, the federal Clean Air Act does provide a large measure of regulatory clarity: States are allowed to depart from the federal air-quality standards, but only by adopting California's.

That helps automakers target their zero-emission vehicles in a way that maximizes the compliance benefits. And with nine other states aligned with California's zero-emissions mandates, it gives them a large enough target market to justify their investments in EV technology.

For instance, the Honda Fit EV, now discontinued, was leased in California, Oregon, Massachusetts, Connecticut, Maryland, New York and New Jersey. The Chevrolet Spark EV, now sold nationally, was originally sold only in California and Oregon.

Mercedes-Benz says it allocates its S550e plug-in hybrid, GLE550e plug-in hybrid crossover, B-class electric and Smart ForTwo electric drive to California and Oregon, though "certified" dealers in other states can stock or order them.

Some clean-air advocates say the "travel provision" in the California regulations -- which counts any EV sale in any Section 177 state toward the automakers' quotas in each of the other nine states -- has let automakers focus their green car efforts narrowly on California, while the other states realize little or no air-quality benefit.

But automakers say there are other factors at work. Michael Lord, executive engineer for product regulatory affairs at Toyota Motor North America, said Toyota launched the Mirai fuel cell EV last October in California because the hydrogen-refueling infrastructure was concentrated there.

Others cited the established support system for EVs in California, including financial incentives, access to extensive high-occupancy-vehicle lanes, charging infrastructure and reduced parking rates.

Those factors explain why the zero-emission vehicle mandate is being met in California, said Dan Gage, senior director of communications and public affairs at the Alliance of Automobile Manufacturers, which hasn't supported the regulations.

In the other states, he said, it will be tougher.

"The market outside of California is currently challenging," said Gage. "It will continue to be challenging."

David Undercoffler, Lindsay Chappell, Laurence Iliff, Amy Wilson, Nick Bunkley, Ryan Beene, Jack Walsworth and Diana T. Kurylko contributed to this report.