Elon Musk Group, which dominates the electric vehicle market, has won a victory that could cost its rivals hundreds of millions of dollars.
Tesla (TSLA) dominates the electric vehicle market, and its lead is likely to expand. That's because amid supply chain disruptions and rising prices of raw materials such as nickel, aluminum and palladium, the makers of Model 3 sedans and Model Y SUVs are among the few automakers that can meet demand.
The automotive group will officially open its fourth production plant in Austin on April 7. Industry sources estimate that this will allow it to produce more than 1.42 million vehicles in 2022, compared with 930,442 vehicles by 2021.
As if that wasn't enough to beat competitors who are struggling to produce 100,000 electric cars a year, the federal government has just reinstated a rule that penalizes traditional automakers. This rule could also increase Tesla's revenue.
NHTSA Fuel Efficiency Penalties
Under a decision signed last week by Steven Cliff, deputy director of the National Highway Traffic Safety Administration, the National Highway Traffic Safety Administration will impose tougher penalties and fines on automakers whose vehicles don't meet fuel efficiency requirements, the so-called corporate average fuel economy standard.
"NHTSA is repealing the provisional final rule and reverting to the December 2016 final rule, which will adjust the CAFE civil penalty rate starting in 2019," the rule reads.
Specifically, this means that for every 0.1 mile increase in fuel economy of all non-compliant vehicles sold from 2019 to 2021, automakers will have to pay $14. The rate was initially $5.50, but NHTSA increased.
According to the regulator, the fine will rise to $15 for the 2022 model.
Paying big bucks for traditional automakers
The rule would cost classic carmakers like Stellantis (STLA) hundreds of millions of dollars — the Get Stellantis NV Report was born after the merger of Fiat Chrysler and France's Peugeot. On the other hand, this is a good thing for Tesla because its cars meet the standards.
According to Reuters, the decision could cost Stellantis as much as $572 million based on the company's previous estimates. At the same time, it raises the value of the compliance credits Tesla sells because vehicles far exceed the prescribed standards of groups that can sell points to companies whose cars are below the standard.
In its February 2021 earnings report, Stellantis said it expected impairment charges in North America to be $138 million, primarily "due to changes in the annual CAFE penalty rate for future models."
Overall, NHTSA expects that implementing adjustments from 2019 onwards may lead to more fuel-efficient technologies for automakers, resulting in lower greenhouse gas emissions and fewer standards and toxic air pollutants than those implemented from 2022.
"Manufacturers are more likely to improve the fuel economy of their fleets to avoid paying higher rates of civil penalties," the federal agency explained.
"From 2019 to 2021, higher civil penalty rates may lead manufacturers to implement fuel-efficient technologies more quickly so they can accumulate credit lines to compensate for compliance gaps," NHTSA argues. ”
Traditional automakers managed to get former President Donald Trump to freeze penalties for those who did not comply with CAFE's requirements. These standards require light vehicles to consume about 54.5 miles per gallon by 2025.
The Trump administration and traditional automakers see this goal as unattainable. So they advocated for changes to these energy efficiency rules, which the Obama administration hastily adopted in late 2016.
Automakers warned at the time that a rate hike would cost the industry at least $1 billion a year. According to NHTSA, automakers will pay $294 million for 2019 models under the new rate, more than double the $115.4 million under the old rate.
The rule will take effect 60 days after the date of publication by the institution.