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New CAFE Standards: Counting On Electric Cars or Counting Out the V-8?

John on July 28, 2011 at 11:09 pm

The administration is set to announce new CAFE standards today:

Environmentalists pushed the administration to raise the current vehicle standard of 35.5 miles per gallon to 62 mpg by 2025. Automakers, who said such a stringent standard would cripple them financially and essentially mandate production of only electric and hybrid vehicles, pushed for a standard in the range of 45 mpg.

Sources familiar with the talks say that the two sides have settled in principle on 54.5 mpg by 2025, a hike of 65 percent from today’s standards. One major reason automakers agreed to such a significant hike is because the White House said it would permit a reconsideration of the standards at a midpoint date.

CAFE standards are somewhat byzantine. There are separate standards for light trucks and a new cap and trade system instituted under Obama means companies will be able to shift mpg averages from one category to another. Plus, you have to remember that the 54.5 mpg is a “fleet average.” Not every car has to meet that but it will have to balance out to that in just 14 years.

54.5 mpg in perspective

There is only one gas powered car that meets the Obama administration’s 2025 mpg standard today. Welcome to the future!

The Tata Nano gets 55mpg. It is powered by a 600cc engine. The “trunk” is big enough for a duffel bag but can only be accessed from inside the car because the rear hatch doesn’t open. Power steering, power brakes are not even options. Too heavy and they would reduce fuel efficiency.

By contrast, the current Toyota Prius gets an average of about 50mpg. That means that by 2025 the Prius will be considered a gas guzzler. Obviously there has to be something to balance the ledger. At present the only cars that can do that are electric vehicles. In effect that’s what these new standards are mandating.

Electric Car Sales x 100?

Electric cars don’t burn gallons of anything so mpg doesn’t really apply. But the EPA has a formula that converts kwh to mpg for comparison purposes. So, for instance, the Nissan Leaf which just went on sale last year is rated at 99 mpg-e. So, for example, for every 2 Altimas sold Nissan will have to sell one Leaf. That may not sound impossible but consider that we’re no where near that now. The Leaf reportedly sold about 4K units in its first 8 months in the US. Nissan sells that many Altimas in the US in a slow week.

The Chevy Volt gets 93 mpg-e. It has been on sale this entire year and is probably going to fall short of initial sales projections, selling just 6-7,000 units this year. That will likely go up as will sales of the Leaf. But can sales go up 80-100x in the next 14 years? That’s the sort of sales that will be necessary to meet the new CAFE standards, not 40k Volt’s a year but more like 400k. Keep in mind, it’s not just the Malibu Chevy has to offset, they also sell the Camaro and the Corvette, neither of which comes close to getting 25 mpg.

The real problem with mandating increased sales in such a dramatic fashion is that these cars are still much more expensive than the gas powered equivalent. A Chevy Volt costs $40k. Even after you take a generous $7,500 tax credit form Uncle Sam, you’re paying more for a Volt than you would for a V-6 Accord. Will Uncle Sam be able to subsidize sales if they multiply by 10x, 50x, 100x?

American Muscle to be Phased Out?

Perhaps electric car sales will take off over the next decade. That’s clearly one way to meet these standards, but not the only one. If EV sales don’t take off the other option will be to cut back on powerful V-8s and V-6s so manufacturers have fewer 20-25 mpg cars to offset. Consider that the base Corvette gets about 19 mpg combined. That means Chevy has to sell roughly one Volt for every Corvette. Currently the Corvette outsells the Volt by 2:1. But if they ditch the Corvette, those Volt sales go a lot further.

Of course there will always be some companies–Maserati, Porsche, Ferrari, Lamborghini–that will simply pay the fine and not even try to meet the new standard. Indeed, they are already doing so under today’s standards. The V-12 Ferrari will never die, but you may have noticed that the average price of those boutique cars is often over $100K. Very few of us can afford them and these regulations will only make them more expensive.

Fortunately, here in the US we’ve always had other options: Mustangs, Camaros, Challengers, Corvettes, etc. But with these new standards, the age of relatively inexpensive, powerful cars could be coming to an end (at least until some breakthrough technology emerges).  Hopefully car loving Americans will ponder having to choose between a Tato Nano and a Nissan Leaf as they drive to the polls next November.

Addendum: In the comments, Scotty mentions a not-so-favorable review of the Chevy Volt from Forbes:

When the gas engine came on, Consumer Reports got about 30 miles to the gallon of premium fuel; which, in terms of additional cost of high-test gas, drives the effective mileage closer to 27 mpg. A conventional Honda Accord, which seats 5 (instead of the Volt’s 4), gets 34 mpg on the highway, and costs less than half of what CR paid, even with the tax break.

They’re not going to sell hundreds of thousands of these any time soon.


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