That makes perfect business sense under the tough clean-air rules mandated by California and nine other states that make up close to 30 percent of the U.S. auto market.
General Motors stands to lose as much as $9,000 on every Chevrolet Bolt that leaves a showroom once the all-electric subcompact starts rolling out. Sounds crazy, but the damage makes perfect business sense under the no pain, no gain policy driving the electric-vehicle boom in the U.S.
California crafted the doctrine, with tough clean-air rules and a mandate that automakers sell some nonpolluting vehicles if they want to do business in the Golden State. Nine other states have adopted it, including Oregon, New York and New Jersey, and all told they make up nearly 30 percent of the U.S. market. Washington is not among them.
That helps explain why zero-emissions models from more than 10 brands are on the roads, with more on the way. Most are destined to be loaded with red ink for their makers, but they’ll be great deals for consumers as companies unload them to meet targets.
While the Trump administration may dilute federal programs that take aim at carbon-dioxide spewing cars, California won’t be backing down, certainly not during Gov. Jerry Brown’s term. The most populous state is such a powerhouse — roughly one in eight new vehicles was registered there in the first half of the year — that companies will keep spitting out electrics for the privilege of selling everything else in their lineups.
Most Read Stories
- Cheating hubby needs to reset attitude toward ‘affair baby’ | Dear Carolyn
- Seattle home too toxic to enter sparked a bidding frenzy — now we know why VIEW
- Washington state will resist federal crackdown on legal weed, AG Ferguson says
- T-Mobile one-ups Verizon’s new unlimited data plan; 4Q results top forecasts
- It’s been a wet (and cold) winter in Seattle — but other West Coast cities have had it worse VIEW
“California will continue to act as the ballast, as the center of gravity, for clean air and climate policies in the U.S.,” said Levi Tillemann, author of “The Great Race,” a book on the future of automobile technology. “Trump will thrust the state back into the role of clean-air crusader, and that’s a banner a lot of people in California don’t mind carrying.’’
Where it’ll get interesting is over the next decade or so. The states’ rules are set to tighten so that zero-emission vehicles, or ZEVs, will have to rise to an estimated 15.4 percent of sales by 2025, some five times the current level.
The hurdles may go higher: Brown, a Democrat with two years left in his term, signed a law ordering that greenhouse-gas emissions be 40 percent below 1990 levels by 2030. To get there, ZEVs — plug-in hybrids or fuel-cell cars like Honda Motor’s Clarity — may have to make up 40 percent of sales, up from about 3 percent now, according to California Air Resources Board staff projections.
Can that really happen? “The idea that automakers will sell 40 percent of their vehicles at a loss in California is ludicrous,” said Eric Noble, president of the CarLab, a consulting company in Orange, Calif., who reckons most electric cars lose at least $10,000 per sale.
The industry is willing to take the hit on a small scale now. Fiat Chrysler Automobiles’ battery-powered Fiat 500e is made for California alone, and CEO Sergio Marchionne said in 2014 it was losing $14,000 per sale. The company’s pretty much giving it away, at a monthly lease-rate of as little as $69. Nissan Motor has advertised lease deals for the Leaf at as low as $149 a month.
Of course, the industry might figure out how to make ZEVs into moneymakers, once the charging-station infrastructure is built out and as battery costs fall. Global demand seems sure to rise, with major economies having recognized climate change as a threat and tailpipe-emissions from gas-powered autos as a chief contributor.
The U.S. has a ZEV incentive of its own, offering a $7,500 tax credit to buyers, and also gives credits to manufacturers to reward them for cars that meet greenhouse-gas reduction targets set by the Obama administration.
There’s no indication President-elect Donald Trump has a view on these enticements. While he has dismissed global warming as “nonsense,” he told The New York Times he has an “open mind” on scientists’ overwhelming consensus that human activity is warming the planet.
The Alliance of Automobile Manufacturers, the industry’s main trade group, has asked Trump to consider their state ZEV costs when evaluating the feasibility of rules set under President Obama to boost average fuel-economy standards by 2025. During the next eight years, the electric-vehicle demands will impose costs of up to $40 billion on companies they’ll pass on to customers, according to the group.
The miles-per-gallon standard, which is 35.3 for 2016, will go to 50.8 under the rules — a number the industry contends could make cars prohibitively expensive.
On Wednesday, the U.S. Environmental Protection Agency took a step that makes it harder for Trump to undo the Obama targets.
EPA Administrator Gina McCarthy announced a preliminary determination that Obama’s 2025 targets are achievable, affordable and appropriate. If she finalizes this decision before leaving office, she’ll force Trump into a formal and protracted rule-making process to revise the rules.
Whatever happens in the national capital, California will be where the power is for years to come.
The bill that established its greenhouse-gas targets was championed by then-Gov, Arnold Schwarzenegger, a Republican. Two California cities, Los Angeles and Bakersfield, are the most smog- and particulate-laden in the nation. Brown has called climate change “the existential threat of our time.”
And California is where ZEVs are being dumped. More than half of all electrics were sold there in the first six months of 2016, according to IHS Markit.
Under the rules, GM needs to sell enough Bolts that it can go to town on other vehicles, including the big-money pickups and SUVS. The Bolt’s projected per-sale loss of $8,000 to $9,000 is an estimate based on a $37,500 sticker price, according to a person familiar with the matter. A GM spokesman declined to comment.
But GM has reasons beyond compliance to promote the Bolt, says Tim Mahoney, Chevy’s chief marketing officer. For one thing, it lures younger, technologically savvy buyers who probably wouldn’t have considered Chevrolet, he said.
The Bolt has a 238-mile range, which gives it an edge over mass-market electrics that have been around for a while; the Leaf can go 107 miles on a single charge, the Fiat 500e just 85.
GM will also have a jump on Tesla Motors’ first and hotly anticipated mass-market offering, the Model 3, due late next year. The Bolt will be available in California and Oregon this month, with states added through 2017.
Here’s how the math works for GM in California. Let’s say it sells 219,962 vehicles in one model year. To avoid heavy fines or the threat of getting shut out entirely, it would need state-awarded ZEV credits equal to 14 percent of the total: 30,794. That would require buyers for 7,698 Bolts, earning four credits for each, or 10,082 Chevy Volt plug-in hybrids or a combination of the two.
“EVs are compliance vehicles, and GM knows this,” said the CarLab’s Noble. “The Bolt will take sales from all of the other vehicles on the market, and GM will get a lot of credits.”
The more ZEVs a company peddles to the public, the more credits it earns, and those with a surplus can sell them to competitors.
As an electric-only manufacturer, Tesla has been able to really tap the program. In the third quarter, it made $139 million selling credits. The biggest buyer in the 11 months ending in August was Fiat Chrysler; GM purchased the smallest amount.
Some see the future in zero- and low-emissions, with or without incentives. Toyota has said it will stop making virtually all gasoline-burning models by 2050, and Volkswagen has plans to sell 1 million battery-powered cars annually by 2025.