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Trump Presidency Won't Kill the Electric Car

Nov. 16, 2016
In the long term, oil prices will likely rise again. Meanwhile, electric vehicle and battery technology continues to evolve, pushing up driving range and reducing prices.

Come January, President-elect Donald Trump will be ferried around in a very thirsty set of wheels: The Presidential Limousine, nicknamed "The Beast," reportedly gets less than 4 miles to the gallon, on average.

What's more, Trump's fossil-forward energy approach means he should be open to letting us, the little people, tool around in less-efficient vehicles, too. His administration is widely expected to take the pressure off automakers to roughly double the fuel efficiency of their vehicles by 2025, a plan agreed to under President Barack Obama in 2011. Indeed, the nation's biggest auto-trade group has asked that Trump roll back the targets.

Tightening fuel-economy standards forces the likes of General Motors Co. and Ford Motor Co. to balance out their fleets' fuel economy -- they sell smaller vehicles and electric cars to compensate for gas-guzzling trucks. Easing up on targets would mean selling more SUVs.

But this won't be the end of the electric car. In some ways, selling more of those SUVs could help it. 

Automakers prefer selling bigger vehicles. This isn't just machismo. Trucks and SUVs carry much higher margins than smaller cars, especially as buyers are more likely to opt for souped-up versions. More bells and whistles mean more profits. 

And guess what: 63% of U.S. vehicle sales were trucks last month, a higher ratio than ever before, according to Bloomberg Intelligence: 

The big reason for this is pretty simple: cheap gas. Fuel efficiency tends to follow gas prices--albeit with a lag and historically requiring a regulatory nudge to make significant gains. Miles per gallon, pretty stagnant through most of the last century, jumped after the oil shocks of the 1970s and enactment of the first federal fuel-economy standards. More recently, fuel economy of new vehicles rose again as gasoline prices surged, but the oil crash has blunted momentum.

In the longer term, though, oil prices will likely rise again--especially if, say, a more-hawkish Trump foreign policy leads to renewed sanctions on Iran and further conflict in the Middle East. Despite the shale boom, the U.S. remains a net importer of oil.

Meanwhile, electric vehicle and battery technology continues to evolve, pushing up driving range and reducing prices. The number of electric vehicle models entering the market is forecast to keep rising through the end of this decade.

Car companies -- most obviously Tesla Motors Inc., but also incumbents such as GM and BMW AG -- have already invested tons of money, and reputation, into their electric vehicles. GM's Chevy Bolt hasn't even hit the showrooms yet and is winning awards already.

Even if U.S. federal regulations loosen, the country accounts for only a fifth of global vehicle sales. And other regions, especially in fast-growing Asian markets such as China and India, have reasons of their own to demand more efficient vehicles, ranging from heavily polluted cities to national security (why embrace ever-increasing dependence on foreign oil?). Don't forget, also, that roughly one of every eight new U.S. vehicle registrations is in California, which is allowed under the Clean Air Act to set more stringent fuel-efficiency targets than the feds.

The upshot is that, while U.S. momentum on fuel economy may well slow under Trump, any automaker that considers itself a global player won't be able to simply halt work on next-generation vehicles. The added kicker: Selling more SUVs and trucks could generate more R&D dollars to go into that effort -- even if, at first, it bears fruit abroad rather than at home.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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