You’re here (TSLA) – Get the Tesla Inc report dominates the electric vehicle market, and its lead is likely to grow. Indeed, the maker of the Model 3 sedan and Model Y SUV is one of the few automakers able to meet demand in the face of supply chain disruptions and rising commodity prices such as nickel, aluminum and palladium.
The automotive group will officially open its fourth production plant, in Austin, on April 7. This would allow it to produce just over 1.42 million vehicles in 2022 against 930,442 in 2021estimate from industry sources.
As if that weren’t enough to eliminate competitors, who are struggling to produce 100,000 electric vehicles a year, the federal government has just reinstated a rule that penalizes traditional automakers. This rule can at the same time increase Tesla’s income.
NHTSA Energy Efficiency Penalties
The U.S. National Highway Traffic Safety Administration will levy greater penalties and fines on automakers whose vehicles fail to meet fuel efficiency requirements, the so-called corporate average fuel economy standards, according to a decision signed last week by Steven Cliff, deputy administrator of the agency.
“NHTSA is retiring the interim final rule and reverting to the December 2016 final rule that would apply the CAFE civil penalty rate adjustment beginning with the 2019 model year,” the rule reads.
In practical terms, this means that automakers will have to pay $14 for each additional 0.1 miles per gallon less than the required fuel economy for all non-compliant vehicles sold from 2019 to 2021. This rate was initially 5.50 $, but NHTSA increased it.
For the 2022 model year, the penalty is $15, according to the regulator.
Big check to pay for legacy automakers
This rule will cost classic car makers like Stellantis hundreds of millions of dollars (STLA) – Get the Stellantis NV report, born from the merger between Fiat Chrysler and the French Peugeot. On the other hand, it is good for Tesla, whose cars are up to standard.
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The move could cost Stellantis up to $572 million according to the company’s earlier estimates, Reuters reported. At the same time, it increases the value of compliance credits sold by Tesla, because groups whose vehicles far exceed the required standards can sell credits to companies whose cars fall below the standards.
Stellantide in February noted in its 2021 earnings report, it forecast impairment expense of $138 million in North America, primarily “due to changes in CAFE penalty rates for future model years.”
Overall, NHTSA predicts that applying the adjustment starting with the 2019 model year could lead automakers to adopt more fuel-efficient technology, resulting in lower greenhouse gas emissions and reductions in many criteria and toxic air pollutants compared to applying the adjustment from the 2022 model year.
“Manufacturers would be more inclined to improve the fuel economy of their fleets to avoid paying the higher civil penalty rates,” explained the federal agency.
“Higher civil penalty rates in model years 2019 through 2021 may cause manufacturers to implement fuel-saving technology more quickly so they can rack up carryover credits to cover compliance failures” , argued the NHTSA.
Legacy automakers had successfully convinced former President Donald Trump to freeze increased penalties for those who failed to comply with CAFE requirements. These standards required light vehicles to have a fuel consumption of approximately 54.5 miles per gallon by 2025.
The Trump administration and mainstream automakers viewed that goal as unachievable. They therefore advocated a revision of these energy efficiency rules, which the Obama administration adopted in haste at the end of 2016.
Automakers warned at the time that rising penalties would cost the industry at least $1 billion a year. Automakers would pay $294 million for 2019 model year vehicles under the new rate, according to NHTSA, more than double the $115.4 million under the old rate.
The rule will go into effect 60 days after the date the agency posts it.