Richard Drury
through hope crystal
The U.S. agency’s final rules on vehicle emissions give manufacturers more time to transition to electric fleets but set ambitious standards for the future.
Last month, the EPA announced final rules for vehicles Emissions will reduce air pollutants from passenger cars, light trucks and medium-duty vehicles.
In an update to the proposed rule issued in April 2023, the agency largely retained the strict 2032 target but softened near-term goals for the 2027 to 2032 model years.
Overall, we believe the ambition of long-term standards is consistent with Joe Biden’s desire to reduce carbon emissions, but also believe their future trajectory may be significantly affected by the next presidential administration.
This means that a new, more modest near-term path for electric vehicles (EVs) by 2030 will require It would account for about 45% of total vehicles sold by original equipment manufacturers (OEMs) (down from the 60% previously proposed by the EPA) and involve a gradual phasing in of CO2 emissions limits from 2027 to 2029.
Increased flexibility among early-stage OEMs should ease the pressure on slow EV adoption caused by the current mismatch between EV supply and demand.
We believe the EPA’s extended phase-in should benefit legacy OEMs and automotive suppliers, as the final rule allows for more time to transition to electric vehicles given less stringent near-term targets.
The “buffer period” from 2027 to 2029 should give lagging automakers and auto suppliers time to catch up and more time to adjust their portfolios and business models.
Another supporting factor is the technology-inclusive orientation of the rules, which allows manufacturers to adopt the technology mix that best suits their fleets. The original proposal only allowed for electric vehicle technology, while the final rule includes hybrid electric vehicles, plug-in hybrid electric vehicles and cleaner gasoline vehicles.
If the new presidential administration does not overturn these final EPA rules, a significant acceleration in the adoption of battery-powered electric vehicles will still be needed after 2029.
At that point, potential laggards in meeting EPA targets will be under intense pressure to either spend billions of dollars buying carbon credits from other compliant automakers or reduce the number of internal combustion engine vehicles they can sell.
Transportation currently accounts for 29% of total U.S. greenhouse gas emissions, with light-duty vehicles being the largest source of emissions, accounting for 58% of all transportation sources, making the industry’s progress critical to achieving climate-related goals.
Against this backdrop, we view the final EPA standards as both a positive credit development for traditional OEMs and an important step in the automotive industry’s own net-zero transformation.
This material is for informational purposes only and nothing contained herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed at any category of investors and should not be construed as personal advice, investment advice or a recommendation to engage or not to engage in any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information has been obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy, completeness or reliability. All information is current as of the date of publication and is subject to change without prior notice. The firm, its employees and consulting accounts may hold positions with any company discussed. Any views or opinions expressed may not reflect those of the Company as a whole. Neuberger Berman products and services may not be available in all jurisdictions or for all customer types. This information may include estimates, outlooks, forecasts and other “forward-looking statements.” Actual events or market behavior may differ significantly from any views expressed due to a variety of factors.
Investing involves risks, including possible loss of principal. Hedge fund and private equity investments are speculative and carry higher risks than traditional investments. Hedge fund and private equity investing is only suitable for experienced investors. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
This information is disseminated through various global subsidiaries and affiliates of Neuberger Berman Group LLC.please visit www.nb.com/disclosure-global-communications RESTRICTIONS AND LIMITATIONS AS TO SPECIFIC ENTITIES AND JURISDICTIONS.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
© 2009-2024 Neuberger Berman Group LLC. all rights reserved.
Editor’s note: Summary highlights for this article were selected by Seeking Alpha editors.
