Americans Go Deeper Into Debt as They Use Buy Now, Pay Later Apps for Groceries
With inflation squeezing budgets, more consumers are turning to instant credit apps to make ends meet.
Updated on
Tuesday, April 18, 2023
Americans Go Deeper Into Debt as They Use Buy Now, Pay Later Apps for Groceries
Wednesday, April 12, 2023
New Tailpipe Rules Will Choke Big Auto’s Profits
New Tailpipe Rules Will Choke Big Auto’s Profits
Detroit is in for a rough ride as carmakers are squeezed by the conflicting demands of consumer tastes, tighter emissions standards and restrictions on supply chains.
An attendee views a Ford Mustang Mach-E GT vehicle during the 2022 North American International Auto Show in Detroit, Michigan in September.
Photographer: Bloomberg/BloombergHaving secured a bag of carrots for electric vehicles in the form of the Inflation Reduction Act, the stick has arrived.
The Environmental Protection Agency just unveiled sharply tightened tailpipe emissions standards, beginning with model year 2027 through 2032. While the EPA doesn’t dictate how vehicle manufacturers get there — not with this Supreme Court — all feasible pathways lead to a plug. The agency’s own analysis theorizes battery-electric vehicles rising from less than 6% of new light-duty vehicle sales last year to 67% in 2032. Big Auto is in for a rough ride, mainly because they are conflicted, as are the objectives of the White House.
When it comes to President Joe Biden’s green agenda, the great legislative triumph was last summer’s 11th-hour passage of the IRA. Punitive measures designed to force decarbonization that featured in earlier iterations were dropped. Instead, we got a smorgasbord of subsidies. With regards to electric vehicles, these included a federal tax credit for buyers of up to $7,500 and other tax credits for manufacturers. But there was a catch: To reap the benefits, EVs and an increasing share of their components, including minerals going into the all-important batteries, would need to be made or mined in America or selected trading partners.
This immediately creates a problem because even though the world’s biggest EV maker, Tesla Inc., hails from the US, much of what goes into EVs is made elsewhere, especially the country that has made the most concerted effort to dominate: China. While EPA is championing the cause of reducing emissions, and thereby addressing climate change, Treasury and the Energy Department are loading the objective of reviving US manufacturing on top of that. In other words, tightening emissions standards demand the production of millions more EVs at affordable prices while subsidy-conditions demand the rewiring and reshoring of supply chains at substantial cost.
Signs of struggle have materialized already. A mini price-war at the start of the year owed something to EV manufacturers trying to fit their product to price caps on federal tax credits, with the age-old question of what counts as a truck versus a car playing a big role. But a broader problem of EV affordability may also be at work, given Tesla’s disappointing first-quarter sales figures and renewed price cuts.
Getting creative with automotive rules is nothing new for Detroit, of course. The sport-utility vehicle — such an odd name, really — owes its existence to the truck loophole in the corporate average fuel economy, or CAFE, standards introduced in the wake of another existential threat, the 1970s oil shocks. Trucks, as defined for regulatory purposes, increased from roughly a fifth of the market in 1975 to about two-thirds today.
In a way, Big Auto’s creativity when faced with that last mandated shift in driving technology has left it particularly vulnerable with regards to this one. First, the industry conditioned a couple of generations of Americans to the idea that they need to pick up junior and the groceries in a tank-with-cupholders rather than a sedan. Electric SUVs and trucks require bigger batteries to move their heft for a decent range, making them more expensive. Hence Tesla’s desire to get its Model Y crossover classified as an SUV, with its higher price cap for the federal tax subsidy.
Second, Kevin Tynan with Bloomberg Intelligence points out, that earlier shift in Detroit’s vehicle mix toward trucks “was profitable on day one.” EVs are not. Ford Motor Co.’s recent restructuring to break out its relatively new EV operations implies negative gross margins for that business of perhaps 20% or more this year. Little wonder Ford got creative with the IRA’s domestic content rules by effectively licensing Chinese battery technology for a planned plant in Michigan; something Tesla may copy. This has already drawn fire from politicians angry that any taxpayer dollars might leak to Beijing.
Incumbent automakers will find themselves — read: profits — squeezed between the conflicting demands of consumer tastes, regulatory standards and restrictions on supply chains. And yet, given flat domestic demand trends and saturation of premium-priced trucks, the industry needs this new path to growth via electrification to work. How else to get a chance to sell a whole new product to the American public again?
From Biden’s perspective, for this to be effective, the next few years between now and the start of the new EPA standards are crucial. All along, the future of his green agenda has been less defined by specific long-term targets and more by current momentum. It isn’t so much that EV sales need to get to a specific number by some year; more that industry and capital markets internalize the idea that mass electrification is the future. The real objective isn’t 67% of sales being EVs by 2032 but the majority of US auto-plants being turned over to EVs sometime later this decade. That will seal the deal simply by changing what’s available.
For that to happen, at a minimum, Biden must continue expanding America’s circle of friends. The administration has been increasing the number of countries that count as free-trade partners in order to loosen somewhat the stranglehold of domestic-content rules, much to Senator Joe Manchin’s chagrin. Next month’s G-7 gathering in Japan may offer a forum for announcing an agreement along these lines with European countries. Given the multiple demands being made on the US autos industry, this is the least the White House can do.
Above all, though, Biden needs some old-fashioned political luck: He, or some other Democratic candidate, needs to win the 2024 election. A Republican president would almost certainly swiftly ease those EPA standards, or at least signal their intent to do so — just as Biden’s predecessor did to former President Barack Obama’s tighter rules. If the new rules survive 2024, though, then even if a Republican won in 2028, by that time automakers would have already retooled to an extent that a snapback in emissions rules would be less meaningful and perhaps even unwelcome. Central to the project of creating new facts on the ground is ensuring those facts don’t change before they are literally planted in the ground.
Subscribe to:
Posts (Atom)