The falling oil price will boost the economy in general and the auto
business in particular, but you might not like some of the unintended
consequences which may include a devastating blow to the nascent
electric car business, a clamor to dilute CAFÉ fuel efficiency rules and
an increase in the gasoline tax.
At Detroit’s North American International Auto Show (NAIAS), FCA CEO Sergio Marchionne called on the U.S. to ease the fuel efficiency rules for 2025, which call for an average 54.5 miles per U.S. gallon. You can rest assured that the rest of the industry agrees, but are unhappy about the possible political flak which might descend on them if they dare to say so. Expect some sly lobbying in Washington rather than on the record protestations.
Investment bank Morgan Stanley MS -2.28%, in a report published before the show’s press previews, said the target might be cut to 50 mpg by 2025, with a 60 mpg promise for 2030. If the price of gasoline at the pump stays anywhere near $2 a gallon, this will torpedo the economics of electric cars, says Morgan Stanley.
GM unveiled the all-electric Chevrolet Bolt concept at the NAIAS, and improved the Volt range-extender
Inspired by low gas prices, U.S. car buyers are expected to increase
their purchases of big, gas-guzzling SUVs and pick-up trucks with fat
profit margins, but at the same time eschew small fuel-sippers developed
at huge expense by the car companies. Small cars have never been
popular in the U.S. but were set to become a necessity as government
regulators set harsh targets for fuel economy. While pressure is also
starting to persuade the U.S. Congress to raise gasoline taxes at the
pump.
“The current trajectory of U.S. regulation on fuel economy was written during a time of higher-for-longer oil prices. The world has changed. Consumers aren’t buying what the regulations are demanding. Absent a serious hike in the gas tax, a re-write maybe needed. Soon,” said Morgan Stanley analysts Adam Jonas.
“We expect many auto manufacturers to push for a “re-grading” if not an outright delay of the current path of proposed CAFE standards through 2025,” Jonas said.
Jonas said the move to 54.5 mpg was a “near-moonshot” project.
“If gasoline prices were to stay anywhere remotely near a $2 to $3 range, consumers will have little economic urgency to purchase expensive technologies required to achieve (about) 55 mpg by 2025. This is a politically sensitive topic with broad implications tied to the corporate/consumer facing image of the manufacturers. As such, we would not expect conspicuous pressure from car companies to pull back on legislation. Traditionally, such pressures are placed through lobbying channels,” Jonas said.
Jonas said electric car prospects, weak anyway, will also be dealt a severe blow. $4 a gallon gasoline means roughly a five year payback from buying an electric car. If the price falls towards $2 this payback period becomes up to 14 years. He expects the 2017 stage in fuel economy which transitions to the second phase to 2025 to come under scrutiny, with more flexibility. The target for 2025 might be pushed back.
“We believe it is very likely that the current 54.5 mpg target will be eased somewhat. We believe 50 mpg will be an appropriate number that will keep the planned trajectory of improvement yet sufficiently ease pressure on (manufacturers) by allowing the target to be achieved almost entirely through ICE (internal combustion engine) improvements alone. Electrification would be the biggest loser in this scenario.”
“To prevent the perception of “slipping backwards” we also expect the standards to announce a larger target, farther out; for example 60 mpg by 2030,” Jonas said.
The fall in the price of gasoline might also provide an excuse to raise the U.S. tax at the pump. The tax, an average 49 cents a gallon including federal and state, compares with taxes in Britain and Germany about seven times higher. Gas price volatility makes it difficult for consumers and manufacturers to plan ahead, said Jonas.
“A well planned gasoline tax could help align economic incentives of all entities involved – consumers, auto manufacturers and the government,” he said.
At the NAIAS, GM underlined the risks involved from investing in new technologies like battery-only. When General Motors GM -2.7% first started work on its Chevrolet Bolt all-electric concept car, unveiled this week, the oil price was probably roughly twice what it is today. It may well return to that level by the time the Bolt reaches showrooms.
At Detroit’s North American International Auto Show (NAIAS), FCA CEO Sergio Marchionne called on the U.S. to ease the fuel efficiency rules for 2025, which call for an average 54.5 miles per U.S. gallon. You can rest assured that the rest of the industry agrees, but are unhappy about the possible political flak which might descend on them if they dare to say so. Expect some sly lobbying in Washington rather than on the record protestations.
Investment bank Morgan Stanley MS -2.28%, in a report published before the show’s press previews, said the target might be cut to 50 mpg by 2025, with a 60 mpg promise for 2030. If the price of gasoline at the pump stays anywhere near $2 a gallon, this will torpedo the economics of electric cars, says Morgan Stanley.
GM unveiled the all-electric Chevrolet Bolt concept at the NAIAS, and improved the Volt range-extender
“The current trajectory of U.S. regulation on fuel economy was written during a time of higher-for-longer oil prices. The world has changed. Consumers aren’t buying what the regulations are demanding. Absent a serious hike in the gas tax, a re-write maybe needed. Soon,” said Morgan Stanley analysts Adam Jonas.
“We expect many auto manufacturers to push for a “re-grading” if not an outright delay of the current path of proposed CAFE standards through 2025,” Jonas said.
Jonas said the move to 54.5 mpg was a “near-moonshot” project.
“If gasoline prices were to stay anywhere remotely near a $2 to $3 range, consumers will have little economic urgency to purchase expensive technologies required to achieve (about) 55 mpg by 2025. This is a politically sensitive topic with broad implications tied to the corporate/consumer facing image of the manufacturers. As such, we would not expect conspicuous pressure from car companies to pull back on legislation. Traditionally, such pressures are placed through lobbying channels,” Jonas said.
Jonas said electric car prospects, weak anyway, will also be dealt a severe blow. $4 a gallon gasoline means roughly a five year payback from buying an electric car. If the price falls towards $2 this payback period becomes up to 14 years. He expects the 2017 stage in fuel economy which transitions to the second phase to 2025 to come under scrutiny, with more flexibility. The target for 2025 might be pushed back.
“We believe it is very likely that the current 54.5 mpg target will be eased somewhat. We believe 50 mpg will be an appropriate number that will keep the planned trajectory of improvement yet sufficiently ease pressure on (manufacturers) by allowing the target to be achieved almost entirely through ICE (internal combustion engine) improvements alone. Electrification would be the biggest loser in this scenario.”
“To prevent the perception of “slipping backwards” we also expect the standards to announce a larger target, farther out; for example 60 mpg by 2030,” Jonas said.
The fall in the price of gasoline might also provide an excuse to raise the U.S. tax at the pump. The tax, an average 49 cents a gallon including federal and state, compares with taxes in Britain and Germany about seven times higher. Gas price volatility makes it difficult for consumers and manufacturers to plan ahead, said Jonas.
“A well planned gasoline tax could help align economic incentives of all entities involved – consumers, auto manufacturers and the government,” he said.
At the NAIAS, GM underlined the risks involved from investing in new technologies like battery-only. When General Motors GM -2.7% first started work on its Chevrolet Bolt all-electric concept car, unveiled this week, the oil price was probably roughly twice what it is today. It may well return to that level by the time the Bolt reaches showrooms.
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