Cars are going electric, with or without America.

It Doesn’t Matter How Much Trump, Pruitt, and America Love Gas Guzzlers. Cars Are Going Electric.

It Doesn’t Matter How Much Trump, Pruitt, and America Love Gas Guzzlers. Cars Are Going Electric.

A Closer Look at the New Energy Economy
Oct. 3 2017 5:57 PM

It Doesn’t Matter How Much Trump, Pruitt, and America Love Gas Guzzlers

Cars are going electric.

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The structure of the global auto market is changing.

JANIFEST/iStock

It’s been a big week for the electrification of cars in the U.S. On Monday, General Motors announced it was embracing an electric future. “General Motors believes the future is all-electric,” said GM head of product Mark Reuss. As the first steps, GM plans to introduce two new all-electric models next year and 18 more in the next five years. For its part, Ford announced it was starting a new internal unit, dubbed Team Edison, to accelerate the company’s electric car efforts.

This is a surprising direction for Detroit’s big two. For one thing, they’re not responding to actual consumer demand. Despite a lot of activity, discussion, and incentives, the market for plug-ins and all-electric vehicles remains quite small in the U.S. In September, GM sold just 2,632 all-electric Bolts and 1,453 plug-in hybrid Volts. Together, they accounted for just 2 percent of GM’s sales. Tesla is laboring to ramp up production of its Model 3 to a mere trickle. In the recently completed quarter, it produced just … 260.

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Second, the development of even this small number of electric and electrified cars in the U.S. has so far been heavily spurred by government incentives and standards. Car companies have been laboring to improve efficiency—via electrification, but also through the development of stop-start engines, more efficient gears, and using different materials—because the Obama administration set aggressive mileage standards: By 2025, the typical car is supposed to get 54.5 miles per gallon. But the Trump administration, which has never met a fossil fuel it didn’t like or an Obama-era regulation it did, is considering lowering that standard. (Make America Guzzle Again?) The arrival of Scott Pruitt at the Environmental Protection Agency could have been taken as a signal to automakers that they can go on producing the gas-guzzling SUVs and pickups—the ones in high demand and that carry fat margins—without fear that the government would punish them for doing so.

Instead the heads of automakers are echoing Al Gore. What gives?

Well, the tastes of the American consumer and the desires of the American government don’t control global markets. And as a result, they don’t necessarily control the strategies that global companies like GM and Ford pursue. They need to be maximally active and present in every foreign market. And increasingly, foreign countries are deciding they want significantly fewer combustion engines spewing emissions in their streets.

In the past year, the following has happened: India, with its 1.4 billion people and a vast car market, has set an admittedly ambitious goal of having all new cars be electrified by 2030. In July, both France and the U.K., the ninth and sixth largest economies in the world, respectively, said they would effectively ban the sale of gasoline-driven vehicles by 2040. Last week, China, which represents the largest auto market in the world, said that in 2019, 10 percent of the cars sold by large automakers in the country would have to be electric. In California, which effectively has its own emissions policy, activists are making noises about banning the combustion engine entirely.

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It’s premature to call time on the combustion engine for a host of reasons. Many of these proposed bans are two decades in the future, and many of the goals promulgated are unrealistic, particularly since the electric car industry is still very much in its infancy. But when you take all these actions into consideration, it is clear that the structure of the global auto market is changing. Whether the instrument of implementation is a sales quota, higher emission standards, an outright ban, a tax credit, or a sales incentive may still be unknown, but the writing is on the wall. In the coming years, it won’t just be nice for automakers to be able to produce fuel-cell, all-electric, plug-in electrics and hybrids in large quantities; it will be necessary. Companies won’t just produce them to burnish their green credentials or give off the impression that they’re forward-thinking. They will do so because in a rising number of markets, offering such vehicles will be the price of entry.

So, sure, Pruitt’s EPA would likely give Detroit a pass on having to make meaningful improvements in its fleets’ efficiency. And that might boost profits and save some costs in the short term. But there’s no point in making a few extra billion dollars selling gas-guzzling SUVs if you’re going to be shut out of vast markets in China and Europe in a few years. (GM already sells more cars in China than it does in the U.S.)

It’s all fine and good to talk trash at the rest of the world, threaten trade wars, and emphasize that U.S. policy should be made primarily to benefit U.S. firms competing in the U.S. market. But in the 21st-century economy, this strategy has its limits. The rest of the world is telling American automakers that they can’t be luddites in their cushy home market and still hope to have full access to tomorrow’s global markets.

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