Trump confirms abolishing the EV mandate on January 20

This is a big deal for the auto industry

Trump says a lot of things, and it’s sometimes hard to know what will become a reality. One such issue is the so-called EV mandate.

The good news here is that Trump revealed in the part of last week’s NBC interview that was not broadcast on NBC and wasn’t in the “full” 1:16 video either, that he will be ending the EV mandate as part of a flurry of executive orders to be signed on or shortly after January 20:

You can hear Trump’s comment after the 6:35 mark in the link above.

Why is this significant?

As I said at the beginning of this article, it’s hard to know which of Trump’s promises will become reality. No tax on tips? Requires a vote in the US Congress. Deport all illegal aliens? Well, I heard that in 2016 too and nothing happened 2017-2021. And so forth.

The fact that Trump brought up this issue as his third-most important to deal with immediately after being sworn in on January 20 is a big deal. It likely means that Trump will sign an executive order stopping the EPA from enforcing the so-called EV mandate, which is really a fleet-wide CO2/GHG (GHG stands for “Greenhouse Gases”) mandate, but below a certain number it effectively becomes an EV mandate. The point at which it effectively “bans” all non-EVs is roughly a decade away, but the cost of implementing this mandate is already breaking the bank of the automakers.

Trump could have made this into a lower priority, or have had no concrete plan to deal with it. Until now, it was not a given. This specific statement by Trump is a HUGE issue for the automotive industry. Automakers will now be given the right to sell whichever mix of EVs and non-EVs that they want, and consumers demand, without penalties from The Federal Government.

The astronomical costs of the EV mandate

The costs of the EV mandate are devious because the average consumer -- and for that matter non-average too -- has no idea why the price of their cars are going up so much. They may think it is as a result of higher labor costs, more expensive steel, or other legitimate input.

Let’s say that in a free market without any government EV incentives and mandates, where consumers were paying the free-market price for each car, 0.1% of consumers would buy an EV. Now the government enters the equation and says that over the next ten years, EV sales must increase from 10%, 20%, 30%, 40% etc of sales, until the 100% mark is reached in a decade.

As an automaker, how do you accomplish this sales mix, going from 0.1% of your cars being EVs, to 100%, when the consumers don’t want to pay the real cost of an EV? Well, you do two things:

• You have to subsidize the price of the EVs. Let’s say that an EV costs $60,000 to make and you have to sell it for $75,000 with all distribution costs and a profit. Now you have to sell it for $30,000 instead. You take a $45,000 loss on every car sold.

• In order to help cover those $45,000 per car losses, you raise the price of all of your regular gasoline vehicles from an average of $30,000 to $35,000 to $40,000 etc, over the next decade. Eventually, before gasoline cars are banned altogether, a gasoline car will cost $75,000.

See what just happened there? In a free market, a gasoline car was $30,000 but it goes to $75,000 over the next decade, in order to finance the losses taken on every EV sold, which really ought to have been priced at $75,000 but needs to be sold for $30,000 at ever-increasing quantities in order to meet the government formula.

Obviously this discussion is highly simplified and does not account for inflation.

Sales and profit disaster

Of course, this government meddling in the automotive industry does not work. What happens is that the automaker ends up struggling to sell enough EVs even at less than half their real cost, but the buyers for overpriced gasoline vehicles dry up over a decade. The automaker goes bankrupt, and consumers either can’t afford the new car they need/want, or can’t buy any new vehicle at all. It results in the Cubanization of the fleet, with the average age of a car on the road becoming older and older.

If Trump fixes this problem

Let’s assume that Trump’s late January 2025 executive order actually happens and that it does not get held up in the courts or equivalent. Then what?

At that point, automakers can scrap plans to make and sell more EVs than consumers are willing to pay for at full cost. How many will that be? There is no way to know this for sure, but I have been saying for a decade that the undisturbed free-market demand for EVs is likely closer to 0.1% than 1.0%. EVs are expensive to make: They only seemed less expensive because the automakers were effectively subsidizing them internally as I described above. When people have to pay full freight for an EV, most buyers go away and buy a gasoline vehicle instead.

The other side of the equation is that automakers can return to making inexpensive vehicles again. It wasn’t all that many years ago that you could buy all sorts of new cars for around $12,000. The EV mandate is the chief culprit in a new basic car or truck now costing nearly $30,000 instead of less than half that amount.

Now ask yourself: Who and what would be best helped if the price of a new entry-level vehicle fell by roughly half?

• People, of course! Especially consumers who are less affluent. They can now trade in their old clunkers that may be nearing 20 years old or worse.

• The environment! The dirtiest cars are the oldest ones, disproportionately driven by the aforementioned less affluent. Make new cars less expensive to buy, and the oldest and dirtiest cars that pollute a thousand times more than a new car, will be scrapped in favor of something new and clean. Safer, too.

The remaining problem: State EV mandates

The US doesn’t just have a Federal EV mandate. A bunch of states led by California also joined in a pact to implement an EV mandate of their own. Let’s leave aside the possibility that the US Federal government could void these state mandates -- covering far fewer than half of the 50 US states by the way.

Here is what would happen if the Federal EV mandate is abolished, but the state mandates aren’t. I will give the example of California vs Arizona. California is one of the 17 or so states that constitute the EV mandate pact. Arizona is not.

This is obviously simplified, but that doesn’t make the example any less relevant: In California, an automaker sells two cars: An EV for $30,000 and a gasoline car for $60,000, the prices being set that way in order to try to fit into the EV mandate sales mix.

Across the state border, in Arizona, the same automaker sells the same EV for $75,000 and the same gasoline car for $30,000, because those prices reflect real costs, not a politically determined sales mix formula. What does the customer do? The California car buyer obviously drives to Arizona to buy his gasoline car. After all, the price is half -- $30,000 vs $60,000. The EV buyer does the opposite: He drives from Arizona to California to buy his EV. After all, it’s $30,000 instead of $75,000.

At this point it shouldn’t take a rocket scientist to figure out that the free market will have broken the state regulations instantly, resulting in total societal chaos. The auto dealers in California all go bankrupt, whereas the auto dealers in Arizona will be thriving beyond belief. After all, in this world the Arizona dealers get at least 99% of the business whereas the California dealers see their business decline by about 99%.

This obviously would become a political problem in California. There is no need right here to speculate how quickly California (and the other 16 states who follow its EV mandate regulations) would fall apart and presumably scrap these insane laws. You see the point.

Global implications: The US as the only sane region

One argument you will often hear is that if the US “goes back to gasoline” then “we” won’t be competitive in EVs anymore. This argument is nonsense.

If the consumers don’t want to buy EVs in the undisturbed free market, then they shouldn’t be subsidized, mandated or otherwise incentivized. Let all forms of cars compete freely, and let the chips fall where they may. If other countries want to deny their consumers the freedom of choice, and soak them with higher prices and higher taxes to pay for subsidies, let them stab themselves. Not our problem.

The main takeaway here: It’s happening

Until this NBC interview, in which Trump’s comment on this issue was not in the broadcast portion, nor in the “full length” version, it was more uncertain whether Trump was going to make getting rid of the US Federal EV mandate a priority. Well, now we have a clear indication that Trump is looking to sign an executive order to this effect on or shortly after January 20, 2025.

This is a really big deal for the automotive industry.

Here is a video describing a part of the situation: