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California has moved to ban sales of carbon dioxide-emitting vehicles by 2035. That is fine in theory but it raises two questions: Can we? And should we?
The answer from the tradition auto industry might surprise many investors. It’s a resounding yes to both.
The auto industry’s relationship with the California Air Resources Board, or CARB, hasn’t always been, well, as agreeable. The relationship is littered with fines for noncompliant vehicles and litigation related to emissions standards. Back in 2001,
General Motors
(ticker: GM) challenged CARB emission regulations in court.
These days, the auto industry and CARB appear to be in lockstep.
Ford Motor
(F) issued a statement following the announcement that CARB was moving to eliminate gasoline-powered cars. “At
Ford
,
combating climate change is a strategic priority, and we’re proud of our partnership with California,” said Bob Holycross, chief sustainability officer at Ford. “We’re committed to building a zero-emissions transportation future that includes everyone, backed by our own investments of more than $50 billion by 2026 in EVs and batteries.”
That statement is a far cry from the tone of prior comments. “We’ve seen in the climate change issue some of the worst examples of how to deal with serious public policy,” said former Ford CEO Alex Trotman at a National Press Club event back in 1997. “We know that greenhouse gases are increasing, we have reason to be concerned about the impact of human influence, but we cannot yet quantify the relatively impact of human activity and natural cyclicality.”
Ford is taking a new approach to CARB regulation. The turn at both Ford and GM is part of the reason CARB goals can be hit. Both U.S. auto makers are spending billions to grow EV sales. They are only two of many spending significant dollars.
Ford wants to sell 2 million EVs annually by 2026. GM wants to be selling 1 million EVs in North America by 2025. And by 2025 or 2026, Wall Street estimates
Tesla
(TSLA) will be selling more than 3 million cars a year around the globe.
Taken all together, those three numbers imply 2025 or 2025 EV penetration of new vehicle sales in the U.S. could easily top 30%. CARB is aiming for 35% in California by 2026. The numbers all jibe.
The auto industry will supply the cars, but will people buy them? Some work still needs to be done on charging infrastructure as well as consumer anxiety about new technologies.
CARB recognizes that and its rules include requirements for auto makers to meet regarding battery durability. Essentially, CARB will require EVs to maintain 70% to 80% of their original range for at least 100,000 miles. CARB is also creating programs to incentivize charging at places such as apartment buildings.
Affordability is still an issue. CARB believes battery electric cars will be the same price as gas powered cars by 2030. EVs, however, don’t have to be that cheap to spur demand. EVs cost roughly 40% less to maintain and the electricity to power an EV can cost as little as 20% of the equivalent amount of gas—depending on where an EV owner is charging and on the local price of gasoline.
CARB, of course, doesn’t have to make cars. The auto industry ultimately has to solve the affordability issue. Some progress is being made despite inflation in key commodities such as lithium. A Ford F-150 Lightning starts at about $46,000. GM plans to offer an electric Chevy Blazer SUV starting in the $30,000s in 2023. Those are less than the most popular EV in the U.S.: The
Tesla
Model Y.
Investors knee-jerk reaction might be to mistrust government mandates. But in the case of auto emissions, following CARB isn’t a bad idea.
Investors don’t seem to fear the CARB mandates though. Ford and GM shares are up more than 4% since the final emissions rule was released, more than double the comparable return of the
S&P 500
and
Write to Al Root at allen.root@dowjones.com
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