Does a ‘just right' scenario for an EV transition exist?

WASHINGTON — When it comes to a transition to electric vehicles in the U.S., what are the risks of moving too fast or too slow?

Probably giving a bigger advantage to China — the largest EV market in the world and a dominant player in the mining and processing of critical minerals needed to make EV batteries.

That's the view of the head of a major automotive trade association that represents a broad swath of industry players planning to invest hundreds of billions of dollars in electrification.

"We do have this Goldilocks dilemma," said John Bozzella, CEO of the Alliance for Automotive Innovation, whose members include legacy automakers such as Ford, General Motors, Toyota and Volkswagen as well as EV battery suppliers such as Panasonic and Samsung SDI.

In a too-fast scenario, in which U.S. regulators and policymakers push EV mandates without sufficient supply chain, infrastructure and market conditions, Bozzella said China could gain a stronger foothold in America's battery supply chain and auto market — an outcome he likened to that of the European Union, which plans to ban new combustion-engine cars by 2035 and faces a threat of cost-competitive Chinese EVs flooding the market.

But move too slowly on electrification, he warned, and there's a risk of the U.S. failing to scale up in time, allowing China to lock up global EV supply chains and expand into other markets.

Other EV stakeholders and climate advocates aren't so convinced by Bozzella's framing of the dilemma, as federal policy actions under the Biden administration aim to address many of his concerns.

At the center of the issue is the EPA's proposal to significantly reduce vehicle emissions for cars and light trucks in the 2027-32 model years. The strictest-ever limits on tailpipe pollution, if finalized, could mean EVs would make up more than half of new-vehicle sales by the 2030 model year and two-thirds by 2032, according to the agency's projections.

"We absolutely have to move forward with the transition," Bozzella told Automotive News. "The real question is do we have the right conditions outside the industry … to support a swift transformation? That's where 'just right' comes into play."

According to Bozzella, that just-right scenario means moving "quickly and aggressively" to reduce vehicle emissions but doing so in a way that maintains consumer choice across EV types and recognizes the U.S. still needs to build up the supply chain and charging infrastructure.

"Right now, despite significant policy direction from the federal government, we haven't seen that materialize," he said.

Bozzella argued that the EPA's rule, as proposed, puts the U.S. on the "too fast" route, consequently giving China an advantage and threatening a just-right transition to electrification.

In comments submitted this month to the EPA, the alliance called the draft rule "a de facto battery-electric vehicle mandate" that is "neither reasonable nor achievable in the time frame provided."

Among its recommendations, the alliance wants the EPA to align the standards more closely with President Joe Biden's 2030 target by adopting requirements that would lead to full-electric and other electrified models — including plug-in hybrids and fuel cells — making up 40 to 50 percent of new-vehicle sales by the end of the decade.

Other automakers also weighed in on the proposal, with Ford, GM, Hyundai, Toyota and Stellantis among the commenters raising concerns over its stringency. The UAW, which has not yet endorsed Biden for reelection, also called for the EPA to soften the proposal and conduct more analysis on its impact to union auto workers.

Meanwhile, Republican lawmakers in the House and Senate have urged the EPA to rescind its proposal, arguing that the rapid EV adoption needed to meet the requirements could force the U.S. to rely on adversaries such as China.

This month, a House subcommittee voted in favor of a bill led by Rep. Tim Walberg, R-Mich., that would block the EPA from finalizing the proposal. The bill heads to the full committee for consideration; however, it is unlikely to become law, as it would need Biden's signature.

The alliance said it has not taken a position on the bill.

In a statement to Automotive News, the EPA, which is expected to finalize the rule by spring 2024, said it "welcomes input on the proposal."

At a House hearing in June, the EPA's Joseph Goffman argued that the standards are supported by investments spurred by the Inflation Reduction Act and bipartisan infrastructure law and are aligned with commitments already made by automakers and states.

"Because the proposed standards are performance-based emissions standards, it is the car companies who would choose the mix of technologies they believe would be best suited for their fleet," Goffman, principal deputy assistant administrator at the EPA's Office of Air and Radiation, said in prepared remarks. "The proposal is not a national electric vehicle mandate or an internal combustion engine ban."

He said the EPA estimates about 42 million to 48 million new ICE vehicles would still be sold from 2027 through 2032, with anywhere from 5 million to 6 million new ICE vehicles sold in 2032 and beyond.

However, Bozzella has argued the proposal — especially the stringency in the early model years — would require automakers to "eke out some incremental improvements by installing expensive new technology" on all ICE vehicles.

"That capital allocation has to come from someplace, and it will come at the expense of EV investment," he warned.

Meanwhile, some industry critics are pushing for even tougher emissions standards and calling for the auto industry to speed up its electrification efforts.

"To me, that sounded a lot like, 'Let's slow down, as we've always done and not disrupt the market,' " said Sara Baldwin, senior director of electrification at Energy Innovation, an energy and climate policy think tank. "I think the point is we are trying to disrupt the market. We are trying to move things faster than we've done before."

An analysis of the Inflation Reduction Act's consumer and manufacturing tax credits by Energy Innovation and the International Council on Clean Transportation found a 48 to 61 percent EV sales share in the light-duty sector by 2030, increasing to 56 to 67 percent by 2032 — and that's without the EPA's vehicle emissions standards factored in, Baldwin said.

"If the regulations are in place, then the auto industry clearly has the two sides of the coin that it needs to move faster, beyond its voluntary commitments and goals," she said.

Industry analyst Michael Dunne also spoke of the urgency, pointing to China's yearslong EV strategy and a bid by U.S. legacy automakers "to buy time."

"China is not slowing down," said Dunne, CEO of ZoZo Go, a consultancy specializing in Asian car markets. "It's like a Sputnik moment for the United States. It has to race and say, 'We're way behind. It won't be pretty.' There are risks, but we've got to move as quickly as possible if we want to be competitive."

Bozzella, in response to critics, cited his group's efforts to defend the EPA's vehicle emissions standards for the 2023-26 model years in a court challenge brought by some states and ethanol groups.

"If a rule is balanced — and even if it is the most aggressive rule we've seen to date — if it's balanced, we will support it," he said.

Balance also is crucial for car dealers, who worry they could be left with an imbalance of inventory if EV supply outpaces charging infrastructure and consumer demand.

"Customers come in and they still have very real concerns about the infrastructure and being able to charge," said Mike DeSilva, owner of Liberty Auto Group, a three-store dealership group in New Jersey that sells Genesis, Hyundai, Kia and Subaru vehicles. "If we're building the wrong mix of cars, that obviously affects consumers, and it affects dealers, too."

The National Automobile Dealers Association said it is hearing from members that EVs are "stacking up" at some dealership lots — a sign that EV production is outpacing demand, as evidenced by Ford's recent announcement to slash prices by as much as $10,000 on the F-150 Lightning electric pickup.

"The dealers are stepping up, and we're doing our part, but some of this product is not hitting that sweet spot just yet," said NADA CEO Mike Stanton.

As for the EPA's proposal, Stanton called it "flawed," adding that it disregards consumer demand and is overly aggressive in its projections for EV market penetration.

"To make a change as aggressive as this requires coordination, and the coordination is severely lacking," he said.

Others wonder whether the U.S. is already in the just-right zone because of the incentives and investments established under the Inflation Reduction Act and infrastructure law that are working to address infrastructure needs and supply chain dependencies.

"There's a laundry list of things we need, but there's almost an order of operations here," said Nick Nigro, founder of EV research group Atlas Public Policy. "You have to make sure that the investors you're trying to attract into the business have a manageable risk, so they can earn a return."

In the case of infrastructure, that means having enough EVs on the road, so charging and electric utility providers know there's going to be demand for their products and services, Nigro said. But to sell more EVs, there needs to be adequate infrastructure.

"Striking that balance is what we're trying to do right now," he said. "When I'm talking about the Goldilocks moment of today, it's because we have incentives for both. … We're just going to need a lot more policy at the state and local level for infrastructure, so that we actually set everything up for success."

The EPA's proposal is another "essential ingredient" to that success, Nigro said — as is more public policy.

"The policy that we have today," he said, "is not the last policy that we're going to need."