We Need More Electric Vehicles, But Extending Regulatory Incentives For EVs Is A Bad Idea
Originally published by Union of Concerned Scientists, The Equation.
By Dave Cooke, Senior Vehicles Analyst
A recent New York Times article noted that the Biden administration will be looking to use vehicle efficiency standards to boost electric vehicles sales. Our analysis shows that strong standards are the best way to accelerate toward an electric future and that we need exactly what President Biden called for: “Setting strong, clear targets where we need to go.” However, if the administration is using voluntary agreements with automakers as the basis for its proposal, as reported, we could be in for continued delay in that transformation.
Automakers continue to push for extra credit for the small number of EVs they do sell, just like the voluntary California agreements. Previous standards have already included a number of incentives for electrification, so it’s worth examining both their historical impact and their significance moving forward. This is especially important with the Biden administration set to propose new vehicle standards later this month.
What regulatory incentives are there for EVs today?
Under EPA’s vehicle emissions program, EVs are credited as having zero emissions (emitting 0 grams CO2 per mile [g/mi]). While EVs are cleaner than gasoline-powered vehicles virtually everywhere in the U.S., ignoring the emissions from the grid powering those vehicles means that every electric vehicle sold can actually reduce the global warming emissions benefits of the program in the short term because it allows automakers to sell higher emitting gasoline vehicles than they would have otherwise.
In addition to ignoring grid emissions, for model years 2017–2021, each sale of an electric vehicle is given extra credit — for example, every EV sold in model year 2017 was counted as TWO vehicles, for the purpose of compliance. These credit multipliers lead to reductions on paper towards compliance, ostensibly encouraging automakers to invest in and sell electric vehicles, but don’t actually bring down real-world emissions. Similar to ignoring grid emissions from EVs for regulatory compliance, credit multipliers allow manufacturers to sell higher-polluting gasoline vehicles the more EVs they sell.
There are additional, somewhat comparable incentives under the fuel economy program that are more complex, but the bottom line is this: these EV incentives built into the regulatory standards were intended to support early electric vehicle sales to help with long-term emissions reductions, at the cost of some additional emissions in the short term. The question now is whether this tradeoff is worth continuing.
State EV policies are a key driver of EV adoption
The complicating factor about federal regulatory incentives to spur EV adoption is that states are already leading the way. California set the first zero-emission vehicle (ZEV) sales requirements in the country, and ten states have since adopted those ZEV requirements (with more on the way).
Unsurprisingly, the states with ZEV requirements see more EV models and greater EV adoption. While complementary policies and differences in local demography may play a role, the data is clear: manufacturers preferentially distribute and sell EVs in states with ZEV policies. As a result, while so-called ZEV states make up less than 30 percent of the new car buying market, consumers in those states purchase nearly two-thirds of all EVs.
While a 2017 change in federal policy was supposed to incentivize EV sales around the country, states with zero-emission vehicle (ZEV) sales requirements are leading the way in EV adoption. Data comparing EV sales before and after those incentives show that, if anything, state ZEV policies are now doing even more to drive adoption, with ZEV states making up a larger share of EV sales since EPA’s EV multipliers took effect. Nearly 2/3 of all EVs sold are sold in ZEV states, despite them making up less than 30 percent of the total U.S. new vehicle market. And this number has increased over time, with the elimination of flexibilities like the “travel provision” and with new states like Colorado adopting ZEV standards.
The EV market is growing
While ZEV sales requirements are driving sales upwards in those states, EV sales around the country are on the rise. Are EV credit multipliers helping to drive that boost? The data raises doubts.
Apart from Tesla’s sales, which skyrocketed beginning in 2017 with the releases of the Model 3 and Model Y (which now make up more than half of all EV sales annually), EV sales have grown steadily, consistent with the pace of growth required by state ZEV policies. While there may be some additionality from federal regulatory incentives (after all, EVs are not sold exclusively in ZEV states), there has been no proportional jump in sales in response to the additional EV incentives. For automakers other than Tesla, sales have remained proportional to the number of vehicle offerings, a number which is also related to increasing state ZEV requirements (since many of those models can only be found in ZEV states).
For Tesla, it is likely that federal EV incentives have helped support growth, since the sale of overcompliance credits to EV laggards like Stellantis (fka Fiat-Chrysler) and Mercedes helps improve profit margins on their EV offerings. However, such credits are reducing the incentive for those companies themselves to invest in electrification, so it is not clear how much of a win even Tesla’s bonus credits are, on net.
EV sales in states like California which require manufacturers to sell EVs track those requirements, indicating that at most federal policy is serving to facilitate the remaining 30-35 percent of EV sales. However, that spillover to the rest of the country is largely just proportional to the number of EVs offered, a feature which is also related to increasing ZEV requirements. While Tesla saw a large spike in sales nationwide with the release of its mass market Model 3 and Model Y, no other substantial increase in sales is observable resulting from the change in EPA EV incentives in 2017. (Note: State ZEV policies are based on complex credit accumulation, so the “ZEV obligation” represents an estimated annual sales requirement taking into account the average number of credits per vehicle and flexibilities in the regulation regarding non-EV sales.)
Growth in EV sales predominantly coming from Tesla and from sales in ZEV states indicates that federal emissions regulations (applicable to all states) are not a primary driver of EV sales. So if EPA’s incentives are not driving additional sales, overcrediting EVs act simply as a windfall to manufacturers for responding to other policies and incentives. This is especially important to reflect upon when manufacturers like GM clamoring for more of those credits are doing so to undermine the state programs helping to drive adoption.
This means the so-called incentives act only to weaken the federal program, and they are doing so at a significant environmental cost. Since 2011, manufacturers have reduced lifetime fleet emissions by nearly 1 billion metric tons by responding to strong standards set under the Obama administration — however, an additional 66 million metric tons of extra EV credits were used for compliance, resulting in a relative increase in emissions and fuel use of nearly 7 percent over where we’d be without those incentives. (To the extent that the grid continues to get cleaner with time, the long-term impact will be reduced somewhat, but the broader point remains.)
EV regulatory incentives can actually REDUCE overall EV sales
While EPA’s incentives appear to have little positive impact thus far, extending those incentives could be much worse. A recent economic analysis presented at a conference on energy and economic policy noted the potential hazards of overcrediting as EV technology improves:
- Pairing an EV multiplier with a lack of accounting for grid emissions for charging EVs directly, and significantly, reduces the stringency of a standard.
- Automakers have an incentive to sell less-efficient gasoline-powered vehicles under regulations which include a higher EV credit multiplier.
- EV incentives can increase EV adoption rates when sales are small and/or technology costs are high.
- BUT as soon as electric vehicles approach being priced competitively with conventional vehicles, extra credits become likely to decrease EV market share because fewer EVs are needed to comply.
While those first three points are all reasonably intuitive, it is that fourth point which has the most impact as we look to the next generation of fuel economy and emissions standards to help drive the industry towards our climate goals — offering extra credits for EVs could actually reduce the incentive to sell more of them.
UCS modeling shows that setting strong federal standards without specific EV incentives would save consumers tens of billions of dollars more than the type of credit-heavy proposal offered by industry, protecting lives, increasing jobs, and leading to more electric vehicles in the process. (For more details, see this blog.)
This data is consistent with our own analysis, which showed that extending EV credit multipliers would lead to fewer EVs on the road. As both analyses show, any EV sales with all these extra credits drastically reduces the overall stringency of the standard a manufacturer must meet — this reduction in stringency reduces the need for technology deployment to meet the standard (it’s easier), allowing for manufacturers to increase sales of gasoline-powered vehicles at the expense of more EVs.
On top of this, those remaining internal combustion engine vehicles are less efficient than they otherwise would have been, which is particularly problematic when EVs are still a small (but growing) share of the overall new car market. While this may be a gold mine for automakers, it’s disastrous for the environment. Clearly, we need a new direction.
The best way to get more EVs nationwide is setting strong standards
EVs are on the cusp of cost parity, and manufacturers are offering more and more models, including in popular vehicle classes like crossovers and pick-ups. This puts the industry poised to accelerate the transition to electrification. But as we move through that transition, we need to be driving emissions down in our gasoline-powered cars and trucks as well.
The best way to maximize emissions reductions as we move towards a more sustainable fleet is to set standards that are based on the real-world performance of these vehicles and ensure emissions are being reduced across the entire new vehicle fleet. The types of bonus credits manufacturers have asked for push us in the wrong direction, undermine emissions reductions, and are counterproductive for electrifying the transportation system.
Vehicles sold in the next few years will remain on the road for nearly two decades, impacting the climate for many more years to come. As the current administration moves forward to right the wrongs of the previous administration, we need to learn from the data and develop strong policies that will drive the industry forward, not policies with the kinds of hand-outs that have repeatedly delayed climate action. While we need to electrify passenger cars and trucks as quickly as possible, it is critical that our fuel economy and emissions standards not just help accelerate that transition, but do so while driving continued improvements in gasoline-powered vehicles as well.
Rivian has released its Q1 2024 results, slightly beating analyst estimates on revenue, which grew sharply year-over-year, but with wider losses than expected and only slight gross margin improvement as it still hopes to turn some quarterly profit by the end of the year.
Electric truck maker Rivian announced its results after the bell today, capping off a quarter that has seen difficulty for some EV makers.
Rivian previously announced that deliveries remained flat between Q4 and Q1 at 13,588 units, but were up 71% since the same quarter last year. Rivian says it achieved 5.1% market share in US EVs in Q1, quite a feat for a company that sells only upmarket vehicles, with the R1S being the best-selling EV over $70k
Q1 tends to be a down quarter for vehicle deliveries, so year-over-year numbers are often used – though with EV makers experiencing rapid growth, quarterly numbers can still be useful.
Analysts estimated that Rivian would bring in $1.175 billion in revenue this quarter, with a loss of $1.15 per share.
Rivian’s actual results, announced today, show that it beat the analysts with $1.204 billion in revenue, but had wider losses than expected at -$1.48 per share. Revenue improved by 82% year-over-year. Rivian ended the quarter with $7,858 billion in cash, down from $9,368 billion at the end of Q4 2023.
Gross margin on vehicles improved slightly, with a loss of $38,784 per vehicle as opposed to $43,372 per vehicle in the previous quarter. The gross margin improvement shows progress, but gross margins are still worse than they were in Q2 and Q3 of last year, at -$32k and -$30k respectively.
However, Rivian has just completed a plant shutdown, which started on April 5, and thus isn’t captured in this quarter’s results. The plant reopened on May 1.
This shutdown was focused on retooling to improve margins, and Rivian says it could increase efficiency by 30%. Rivian sees “significant progress” on cost optimization already, and says that it expects slight positive gross profit in Q4 of this year. We’ll expect to hear more about how the shutdown went on the company’s earnings call at 2PM PDT/5PM EDT today.
It’s also the first earnings call since Rivian’s R2/R3 unveiling event. These are Rivian’s two upcoming vehicles, with which it plans to move downmarket and into higher volume spaces. The R2 will start around $45k in the first half of 2026, while the R3 timeline and cost have not yet been announced.
Along with that event, Rivian announced that it would move production forward for the R2, by building it at its existing plant in Normal, IL, rather than a planned future plant in Georgia. This will bring Normal’s production numbers up to 215k units of total capacity per year across all products.
The main reason for this is to reduce capex in the short-term by $2.25 billion, saving the company cash in a time where fundraising is more difficult than it has been in the past. Rivian also recently cut 1% of jobs in service of these cost savings.
As part of today’s release, Rivian also reduced capex guidance for 2024 to $1.2 billion, down from $1.75 billion. It expects to save money in 2025 and 2026 from the decision to move R2 production to Normal, as well.
Otherwise, Rivian reaffirmed its full year 2024 guidance of 57,000 units production and a $2.7 billion loss, though it expects slight gross profit in Q4.
Rivian (RIVN) closed down 0.77% today, after opening high in response to rumors about a partnership with Apple, but giving back the gains throughout the day. RIVN is currently down 2-3% in aftermarket trading as we await the earnings call, where we expect a question (and likely non-answer) about the Apple rumors.
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Shenzhen, the home of Chinese EV giant BYD, says it’s become the first in China to have more supercharging plugs than gas pumps.
As Electrek reported in April, BYD received direct government subsidies of “at least” $3.7 billion to grow its EV business and undercut the competition with aggressively low pricing. So all those cheap EVs need to be fast-charged, and what better place to expand than BYD’s home city?
In June 2023, Shenzhen unveiled its first fully liquid-cooled supercharging prototype station as part of its “City of Supercharging” plan, in which it set a goal to build as many supercharging stations as gas stations by 2025. And these “superchargers” aren’t just DC fast chargers – they can charge EVs to 80% in just 10 minutes.
Shenzhen had 362 supercharging stations as of April 30, according to the latest data released by the city, but it didn’t say how many gas pumps there are. They’ve been conveniently sited in commercial complexes, bus stops, and industrial parks.
According to data from the Southern Power Grid Shenzhen Power Supply Bureau, Shenzhen’s EV charging volume reached 670 million kilowatt-hours in Q1 2024, an 11% increase year-over-year. So, the city has to plan carefully so as not to overburden the grid as both EVs and superchargers rapidly come online.
The city of 12.5 million people has been an electrification leader for some time; in 2017, it completely electrified its bus fleet with more than 16,000 electric buses, and its taxis became electrified in 2019.
China leads the world in renewables and EV growth, but it’s also the No 1 emitter of harmful greenhouse gases.
Read more: In 2023, investment in clean energy manufacturing shot up 70% from 2022
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Tesla CEO Elon Musk is causing chaos in the EV industry by firing Tesla’s entire charging team, which may lead some automakers to reconsider their plans to adopt the NACS plug. But NACS is just a better standard, and the industry should move forward on it, even if Tesla waffles with its commitment.
Last week, Tesla abruptly fired its entire Supercharging team, leading to an immediate pullback in Supercharger installation plans. The explanation we’ve heard for these firings is that CEO Elon Musk was unhappy with EV Charging lead Rebecca Tinucci for not firing enough people, and retaliated by suddenly firing her and her entire team.
The firing was so ill-considered that the company has even had to send out an email blast to suppliers and contractors, seemingly confused about which companies it’s even working with on site development.
The abrupt firing has caused a lot of chaos and reconsideration in the EV industry, with some automakers reportedly having meetings about whether to proceed with the planned NACS transition or pull back on their plans.
Currently, EVs from Ford and Rivian can charge on Tesla’s Supercharger network through adapters, but other automakers can’t yet. Tesla planned to roll out support to more brands this spring (GM, Volvo, Polestar), with more coming later. Virtually every brand has announced they will adopt NACS in the next couple years.
But this Supercharger rollout to other automakers will likely be slowed down, as the Supercharger team was the group responsible for onboarding other automakers, and for advancing the whole idea of NACS in the first place.
As a result there have been questions swirling about whether this could spell doom for NACS, potentially being an end to the standard as everyone switches back to CCS.
Is NACS going to die? It shouldn’t, here’s why
First, I don’t think NACS is going to die. Tesla will still use it, and is still the biggest EV brand in North America. While firing the whole team is a petty and incomprehensible move, I expect that the company will eventually come to its senses and hire some people back into that department, and continue to develop and install its charging system, though this will still be a huge setback.
The thing is – NACS is overall just a better standard than CCS. That’s why, when SAE certified the standard, we wrote that “it’ll fix every charging problem at once” (maybe not quite every problem, but close). The cable and connector are easier to use, its 277V support is better for commercial installations, its provision for carry-along cables is better for public infrastructure (especially street parking) and more interoperable with international receptacles.
Also, NACS is now out of Tesla’s hands. The SAE certification for NACS, which it calls J3400, is already finished. So it’s a real standard, and it’s a standard that Tesla no longer has control over. Other companies can make NACS ports and NACS chargers and all the technical information needed is out there and open for use. It’s only Supercharger network compatibility that is in Tesla’s hands (and if they want NEVI funds, they’re going to have to allow other brands to charge at their chargers).
And now that the whole industry already decided to convert to NACS (which is a tough thing to get everyone to agree on), it also puts to bed the format war that we might have had between Superchargers and CCS.
It would be one thing to convert from one standard to another and leave everyone out in the cold, but the industry has already started planning this conversion, and adapters are available. There will be a transition period where CCS and NACS chargers both remain available, so most people shouldn’t have trouble finding a charge.
But it does make sense to collapse down to one standard, and it makes sense to collapse down to the better one.
And so, rumors that manufacturers are considering reversing their NACS transition plans will hopefully not come true. Manufacturers should continue forward in transitioning and getting NACS ports on their vehicles as soon as possible, third parties should focus primarily on installing NACS chargers to pick up the slack left by Tesla’s pullback (with some CCS during the transitionary period), and Tesla should rehire a division to ensure that the transition goes smoothly (you already had one and firing them was stupid).
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