Are We Headed For An Electric Car Crisis?

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If there’s one major automobile trend we’ve seen at the recent spate of trade shows, besides putting screens everywhere, it’s electrification. The car industry has been moving towards more hybrids and EVs for some time, but this year’s CES almost made gas look like a thing of the past. But is the U.S. also headed for an electric car crisis?

As they recover from Dieselgate, Volkswagen and Audi are going big on electric cars. So is Ford. So is Chevrolet. So is Mercedes and also pretty much everyone else. They’re doing this in part because electrification is likely the future of automobile transport, but more because ever-stricter government fuel economy and emissions requirements force them to.


Problem is, with gas so cheap in the U.S. right now, nobody here is buying these things right now. And if that trend continues it could mean costly headaches for car companies.

According to new data from Brandon Schoettle and Michael Sivak of University of Michigan’s Transportation Research Institute, the U.S.’ average fuel economy was down in 2015 compared to the previous year. They reported fuel economy is down 0.9 mpg from the peak reached in August 2014, but on the plus side, it’s still up 4.8 mpg from when the university began this study in 2007.


Why is the fuel economy average down when cars are ever more efficient? Since gas prices have been declining for a year now, and the national price of a gallon of unleaded is about $1.97 at the moment, Americans just aren’t making fuel-efficiency a priority with their new car choices. The biggest winners in 2015’s record-breaking new car-a-palooza were Jeep, Ram and any brand with a lot of SUVs, trucks and crossovers.


Given the chance, Americans will default to bigger cars every time. Not hybrids and EVs, but trucks and SUVs.

Granted, the hybrid market is still relatively small in the marketplace, though it’s growing quickly; and the EV charging infrastructure and charging times aren’t all where they need to be to meet most Americans’ needs yet. But the EVs and hybrids are coming fast, and with gas this cheap, who’s gonna buy them?


This “electric disconnect” is highlighted extremely well in this Detroit News story. Automakers are going green not just to save the planet, but because they have to: by 2020 California will require 10 percent of all sales to be EV or fuel cell cars, and nationally, fleets have to average 54.5 mpg by 2025. Right now, we’re at about 24.7 mpg. Oof.

The result, the News points out, is what industry folks are calling a “two-tier market”: one market full of SUVs and trucks people actually buy, and one with the “money-losing compliance vehicles” of EVs and hybrids people aren’t buying. And if you’re an automaker without the intensive capital to develop those cars, you’re kinda screwed. From the story:

Industry insiders refer to EVs like the Bolt as “compliance vehicles,” made not in response to market demand, but to comply with government regulations. But for smaller automakers like Fiat Chrysler, Mazda and Subaru — which haven’t been able to afford the massive R&D costs of EVs — the regulatory challenges are steep.

“The entire industry is going more toward electrification,” said Reid Bigland, FCA’s North American vice president of sales. “It’s really the primary way to be compliant with the 2025 (federal) standards. That is consuming a significant amount of capital in this industry.”


It’s the classic battle between market forces and regulators. But the latter isn’t going to back down, even when it forces smaller automakers like Mazda or Subaru (or cash-strapped ones like Fiat Chrysler) to buy EV credits to stay in compliance.

Even if you’re a die-hard green car person—or at the very least, someone who sees the long-term value in weaning cars off fossil fuels, as I certainly can—you can see what a tough situation this is for automakers. Standards are forcing them to make cars that people may not necessarily buy, and that they may not necessarily profit from. But what’s the alternative, the government backs off on making cars more efficient? That’s not likely to happen anytime soon.


I don’t know what the answer is here, for regulators or for automakers. If gas shoots up to $6 a gallon, that might take care of the problem, but no consumer wants that to happen.

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