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Sharp rise in US fuel efficiency penalties for automakers is boost for Tesla

Sharp rise in US fuel efficiency penalties for automakers is boost for Tesla

The National Highway Traffic Safety Administration has reinstated penalties that could cost manufacturers hundreds of millions
The US National Highway Traffic Safety Administration (NHTSA) has reinstated a sharp increase in penalties for automakers whose vehicles do not meet fuel efficiency requirements for model years 2019 and beyond.

The decision is a win for Tesla that could cost other automakers hundreds of millions of dollars or more.

Confirming an earlier report by Reuters, the NHTSA said the decision “increases the accountability of manufacturers for violating the nation’s fuel economy standards” and the penalty increase “incentivizes manufacturers to make fuel economy improvements”.

Donald Trump’s administration in its final days in January 2021 delayed a 2016 regulation that more than doubled penalties for automakers failing to meet Corporate Average Fuel Economy (Cafe) requirements starting in the 2019 model year.

The NHTSA final rule, which takes effect 60 days after it is published, reinstated the higher penalties and increased them further for the 2022 model year. The agency has not collected penalties for 2019 to 2021 model years while the issue was under review and is the subject of court challenges.

The final rule was signed on Thursday by the NHTSA’s top official, Steven Cliff.

For the 2019 to 2021 model years, the fine is $14, up from $5.50, for every 0.1 mile per gallon new vehicles fall short of required fuel-economy standards, multiplied by the number of non-complying vehicles sold. For the 2022 model year, the fine rises to $15.

Automakers protested against the penalty hike in 2016, warning it could raise industry costs by at least $1bn annually. The decision is expected to cost Chrysler parent Stellantis, for instance, as much as $572m by the company’s prior estimates, while boosting the value of compliance credits sold by Tesla.

Automakers whose vehicles achieve higher fuel economy than required can sell credits to automakers that do not meet Cafe rules.

Under Barack Obama, the higher penalties were set to start with the 2019 model year but the Trump administration set the effective date as the 2022 model year following a court decision.

The NHTSA estimated that for the 2019 model year, automakers would owe $294m at the new rate, up from $115.4m under the prior rate. The NHTSA added automakers that made plans for 2019 through 2021 “thinking that penalties would not increase did so at their own risk”.

The head of a trade group representing nearly all large automakers except Tesla said Sunday it would be a “better outcome” if the penalties “were invested in electric vehicles, batteries and charging infrastructure instead of disappearing into the general fund of the Treasury”.

In August, the NHTSA proposed hiking Cafe requirements by 8% annually for 2024 through 2026, reversing a Trump-era regulation that rolled back higher requirements starting in the 2021 model year. The NHTSA is expected to issue its final Cafe rules through 2026 this week.

On Sunday, Stellantis said it would “like to work with the administration and Congress to allow the agencies to use the proceeds from penalties to bolster investments in the technologies and infrastructure required to accelerate a robust US market for EVs”.

Tesla did not immediately respond to a request for comment.

Congress in 2015 ordered federal agencies to adjust civil penalties to account for inflation. US fuel economy fines lost 75% of their original value, having risen only once since 1975, from $5 to $5.50 in 1997.
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