Is This the Death Knell of the Gas-powered Car?

Last week the U.S. Department of Transportation (USDOT) issued new vehicle fuel economy standards.

A bunch of nameless, faceless, unelected bureaucrats just effectively killed the gas-powered car as we know it today.  The new standard states that the Corporate Average Fuel Economy (CAFE) standard now must be 50.4 MPG by 2031.

What does this mean to us?  Well, it means that U.S. auto manufacturers need to sell a lot more electric vehicles.

The way that the CAFE standard is calculated is really quite complex (naturally, it’s defined by the government!) and a normal human can’t calculate it easily¹.

The point is, to hit 50.4 miles per gallon across all the cars produced by a company, you need to sell a lot of electric cars and not so many gas-powered cars.

My new Jeep gets an average of 21 MPG.  In 2032, Jeep would need to sell approximately three 100 MPGe electric cars for every Jeep like mine in order to conform to the new standard.

So, I ask you, what are the odds of that happening?

If the current state of the automotive market continues, I’d say not good.

How’s this for a headline?  Unsold Teslas Pile-Up in Mall Parking-Lots.

Or this?  Ford Loses $132,000 on Each EV Produced, Good News, EV Sales Down 20 Percent.

And, things aren’t going too well in the development of EV charging stations: “CBS’s Brennan To Buttigieg: How Is It Possible That $7.5 Billion Investment Has Only Produced ‘7 Or 8’ EV Charging Stations So Far?”  BTW, only in government could you have someone that doesn’t know if its 7 or 8.  Not millions or thousands but 7 or 8 individual charging stations.  And wouldn’t YOU have been embarrassed to admit that?

And, it’s not just the U.S. that is rejecting EVs:

• Sales of Volkswagen's electric vehicles have declined by nearly 25% in Europe

• Weak EV Market Dragged Down European Car Sales In March

• Chinese Battery Makers Back Out Of Germany Amidst Cooling EV Demand

Car manufacturers are not the only businesses impacted by EVs: Car rental company Hertz learned a hard lesson when it purchased a fleet of EVs and hardly anyone wanted to rent them.  Hertz had a fire sale to get rid of 20,000 of these vehicles. Oh, and the CEO got fired.

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Let’s apply some basic supply and demand economics here.  Unless there’s a major realignment of consumer sentiment, if a lot of people want to buy a new car but don’t want an electric car, and if the government is forcing three of four cars sold to be electric, what happens?  Well, here’s what I think:

• The price of electric cars will drop to better align with decreased demand.

• The price of gasoline-powered cars will increase due to the limited supply and the higher demand.

• Auto manufacturers will make less on the electric cars (or lose money on each).  Those EVs will be smaller, cheaper models with fewer standard features in order to keep their prices lower.

• The gas-powered cars made will tend to be from premium brands (Cadillac, Lincoln, BMW, Mercedes, etc.) that will command higher prices and be more profitable.

And, weaker auto manufacturers could declare bankruptcy or exit the U.S. market.

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I’ve written a number of times about buying an electric car.  See here, here and here.  Now don’t get me wrong, if you want an electric car, by all means buy one.  I wrote about this in 2022: So, You Want to Buy an Electric Car?

The problem with the new USDOT CAFE standard is that it uses the heavy hand of government to force consumers to buy a product that, frankly, many don’t want.  In a supposed free-market economy, we should be letting the free market determine what consumers purchase.

1. For example, for a fleet composed of four different kinds of vehicle A, B, C and D, produced in numbers nA, nB, nC and nD, with fuel economies fA, fB, fC and fD, the CAFE would be:

So, a fleet of 4 vehicles getting 15, 13, 17, and 100 mpg has a CAFE of slightly less than 19 mpg:

Your eyes glaze over yet?