The Department of Transportation announced yesterday that it would be resetting Corporate Average Fuel Economy (CAFE) standards. The Biden administration’s previous standards implemented a de-facto mandate for electric vehicles.
The Biden standards required average mileage of about 50 miles per gallon across 2031 model-year vehicles. Since CAFE standards are effectively an average across an automaker’s fleet, that doesn’t mean that every vehicle they produce needs to reach 50 miles per gallon.
Automakers that cannot meet emissions targets have to buy credits from those that are in compliance and have excess credits to sell, such as EV manufacturers like Tesla, or reduce their sales of gas-powered vehicles. Selling CAFE credits has added billions to Tesla’s bottom line, over $11 billion over the past decade, forming “a foundational part of its revenue.” The Biden administration’s CAFE standards and similar EPA regulations would have caused EVs to be between 30 percent and 56 percent of new passenger vehicle sales by 2030 to 2032.
The reset proposal still increases fuel economy standards incrementally, but the average fuel economy would reach a more-achievable 34.5 miles per gallon by model year 2021. The proposal also eliminates the CAFE trading credits for electric vehicles starting in model year 2028. It also classifies crossovers and small SUVs as passenger automobiles rather than light trucks.
The One Big Beautiful Bill Act had zeroed-out penalties for noncompliance with CAFE standards. The Transportation Department estimates the proposal will lead to regulatory savings of $109 billion over the next five years and knock down about $1,000 on the average cost of a new vehicle.
For the American consumer, EVs tend to have higher average sticker prices, with the average transaction price of an EV being $57,245—compared with $48,179 for an average internal combustion vehicle. And even calculating the total cost of ownership, including fuel costs and maintenance, 56 percent of the current fleet of EVs still lose money compared with similar gas vehicle models. The Biden-era CAFE standards would have pushed consumers to unaffordable EV options and added hidden costs to internal-combustion options.
The proposal will be open for a 45-day public comment period after its publication in the Federal Register.
