Fuel economy fines nearly triple for legacy automakers in a boon for Tesla, as the US reverses a Trump administration delay
The U.S. National Highway Traffic Safety Administration (NHTSA) rolled back President Trump administration's delays of a new federal fuel economy standard rule that nearly triples the penalty for legacy automakers which don't comply. Those who fail to meet the ever-increasing Corporate Average Fuel Economy (CAFE) standards will now have to pay US$14 for each 0.1 mile per gallon over the limit and for each non-compliant vehicle, starting from model year 2019. The NHTSA argues that fuel economy penalties have risen only once since 1975 - from US$5 to US$5.5 - and they have to now be adjusted for inflation.
The new penalty regulation was introduced in 2016 but in the last days of its tenure, President Trump's administration delayed its starting date for further review. The review is now over and the NHTSA says that legacy automakers will have to pay the fines retroactively for the model years 2019-2021, while this year the penalty will be raised to US$15 per vehicle and every 0.1 mile per gallon in overages.
This amounts to many millions for a lot of car companies and benefits electric car makers like Tesla which will be able to sell its carbon credits to them at a higher price. Stellantis, the owner of Chrysler, will have to pay US$572 million more in total, according to its estimates, while just for the 2019 model year alone the federal tally will be US$294 million now, as opposed to US$115.4 million at the old US$5.5 rate. When it learned about the CAFE penalty rise on Sunday, Stellantis immediately reacted with the following statement:
[We'd] like to work with the administration and Congress to allow the agencies to use the proceeds from penalties to bolster investments in the technologies and infrastructure required to accelerate a robust U.S. market for EVs.
An industry association of most legacy automakers was also adamant that the money from the increased CAFE penalty rate goes directly into "electric vehicles, batteries and charging infrastructure instead of disappearing into the general fund of the Treasury." The argument over spending the fuel economy penalties is only poised to deepen, as the NHTSA wants the CAFE standards to be raised by 8% each year, starting in 2024, making it even harder for makers of gas-powered cars to comply, all the while Tesla and other EV manufacturers can capitalize on their sustainable transportation compliance credits further. Tesla just recently started splitting its carbon tax credits revenue from its car leases in financial statements, as mandated by the SEC, and said it made US$1.5 billion just from selling credits to other automakers last year, on US$5.5 billion of net income in total.