New Rules Will Still Push Carmakers to Sell More Electric Cars

Even if clean air rules announced on Wednesday in Washington are less forceful than some environmentalists would have liked, they should still have a powerful effect on the kinds of cars appearing in showrooms over the next several years, experts said.

The rules will amplify market forces pushing the industry toward battery power, giving automakers a strong incentive to sell a broader, more affordable variety of electric cars — not just the expensive sport utility vehicles that have dominated sales so far.

“It probably means more models and lower prices,” said Craig Segall, former deputy executive officer of the California Air Resources Board, an agency that played a key role in promoting electric vehicles in that state. “The way you win,” he said, referring to carmakers, “is making sure you have an E.V. in each segment.”

Despite talk of a slowdown, sales of electric vehicles are growing much faster than sales of vehicles that run on fossil fuels. Prices of electric vehicles have dropped significantly and are likely to fall further as carmakers get better at making them and the cost of batteries and raw materials plummets.

The Environmental Protection Agency rules announced Wednesday “certainly don’t slow down the pace at which our members are scaling up production,” said Albert Gore III, executive director of the Zero Emission Transportation Association. The association’s members include Tesla and other electric carmakers, as well as battery manufacturers, charging companies and suppliers.

The Inflation Reduction Act, passed by Democrats in 2022, led to a boom in investment in battery factories and electric vehicle plants. Since then, companies have announced investments of more than $110 billion in battery factories and electric vehicle assembly plants, according to the Environmental Defense Fund. These are long-term financial commitments that companies are likely to stick to regardless of what the federal government does.

Within a few years, electric cars that can drive more than 300 miles on a charge are likely to cost less than gasoline vehicles even before accounting for fuel savings. Electricity is usually much cheaper than gasoline. That will give more car buyers strong economic reasons to go electric.

The average price of a new electric vehicle has fallen substantially. It was $52,314 in February, according to Kelley Blue Book, still about $5,000 more than the average for all vehicles. But electric vehicle prices plummeted 13 percent in February from a year earlier, and more than $2,500 just from January. The cost of used battery-powered vehicles has dropped much more than that.

Prices will to continue to fall steeply because batteries, the most important and expensive component, are becoming much cheaper, analysts say. The average cost of a battery pack is on track to plunge more than 40 percent by 2030 compared with 2022, according to estimates by the International Council on Clean Transportation, a research organization.

Electric vehicles “are getting closer to parity with gas cars,” said Katherine García, a transportation expert at the Sierra Club. “We are going to see that sooner than originally forecast.”

During the early years of the E.P.A. rules announced on Wednesday, automakers will face somewhat less pressure to cut emissions than under an earlier agency proposal. The E.P.A. doesn’t dictate to automakers how they meet the standards. They can also reduce emissions by improving the efficiency of gasoline engines or by selling more hybrid cars that augment gasoline engines with batteries and electric motors.

Plug-in hybrids, which can travel short distances on battery power alone and are growing in popularity, could proliferate during the next few years. They will account for as much as 9 percent of new car sales by 2030, according to E.P.A. estimates, compared with about 2 percent last year.

But automakers will get the most credit for all-electric cars that have no tailpipe emissions. They will account for 44 percent of new cars by 2030, according to the E.P.A.

Longer term, most automakers acknowledge that they need to sell appealing electric vehicles to survive.

“E.V.s are clearly the future and what consumers are going to be wanting and what’s going to be cheapest to produce,” said Stephanie Searle, chief program officer at the International Council on Clean Transportation. “Automakers need to be investing in that to keep up.”

Tesla has already shaken the car market and has become the world’s most valuable automaker. New competitors from China are looming, as Beijing tries to take advantage of the technological shift to become a major auto exporter.

Tariffs and other restrictions have limited Chinese exports to the United States so far. But automakers like BYD, which sells an electric car in China for less than $12,000, could find a way in by producing in Mexico or even building factories in the United States.

For automakers, the emergence of Chinese rivals is a powerful motivator. It evokes unpleasant memories of the way Toyota, Honda and other Japanese automakers broke the dominance of Ford Motor, General Motors and Chrysler in the 1970s with inexpensive, fuel-efficient cars. Tesla, Ford and Volkswagen are among the major automakers working on low-cost electric vehicles that are clearly inspired by the threat from China.

Experience has shown that technology often moves faster than regulations require. Under E.P.A. rules that took effect in 2017, electric vehicles were expected to account for 3 percent of new car sales by 2025. But battery-powered cars are already at about 8 percent of the U.S. new car market.

In California, which has long had the strictest pollution limits, electric cars made up 25 percent of new cars sold last year. And under rules passed in 2022, the state will phase out cars that burn fossil fuels by 2035.

“California has more than its share of E.V.s because we asked for it,” said Mr. Segall, the former state official, who is now vice president of Evergreen, an activist group.

Another 12 states, including New York and New Jersey, model their rules on California’s and won’t be affected much by E.P.A. regulations because their rules are already stricter. The federal rules will have the most impact on states like Texas, Florida and Connecticut that don’t follow California.

The rules will also put pressure on carmakers like Toyota and Stellantis, the owner of Chrysler, Dodge, Ram and Jeep, which have been slow to sell fully electric vehicles.

The E.P.A. rules are among numerous Biden administration policies intended to promote electric vehicles. Tax credits of up to $7,500 are available for vehicles that are manufactured in the United States, Canada or Mexico and meet other requirements designed to promote a domestic supply chain. The number of vehicles that qualify is small, but is expected to grow as carmakers like Hyundai make more vehicles in the United States.

The government is also subsidizing construction of fast-charging stations, which along with investments by carmakers like Mercedes-Benz and charging companies like Electrify America will soon remove a major sticking point for many car buyers.

Surveys show that many people are interested in electric cars but are worried about finding a place to charge on road trips. If governments and companies follow through on all the plans they have announced, according to a study published this month by the International Council on Clean Transportation, by 2030 there will be more than enough fast chargers.