Trump Can't Kill The Electric Car

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.

Trump's Next Set of Wheels

"The Beast"

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. 

Bigger Sales

The average retail value for SUVs is much higher than cars and they're also more profitable

Source: Edmunds.com

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

Keep on Truckin'

Thanks to cheap gas, Americans have been free to buy more trucks as a share of vehicles than ever

Source: Ward's Automotive

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.

Fuel Speed Ahead

Fuel efficiency in U.S. light-duty vehicles jumped after the oil shocks of the 1970s but slackened off after that as gasoline prices stagnated

Sources: Energy.gov (gas prices); Energy Information Administration, Department of Transportation (fuel efficiency)

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: 

Nothing But Net

Despite ramping up production, the U.S. is still a net importer of crude oil and petroleum products, meaning our gas prices are still tied to global forces

Source: U.S. Department of Energy

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.

Power Up

Electric vehicle battery energy density is expected to grow, making them cheaper and more reliable

Source: Bloomberg New Energy Finance

It's Electric

The number of electric vehicle models available globally is set to hit nearly 200 in 2020

Source: Bloomberg New Energy Finance

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.

To contact the authors of this story: Rani Molla in New York at rmolla2@bloomberg.net Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net

Source: Trump Can't Kill The Electric Car