The U.S. EPA has recently proposed the toughest-ever emissions regulations for vehicles of the model years 2027-2032. During the five-year period, the average quantity of CO2 emissions must be reduced by 13% per annum, and an overall reduction of 56% must be achieved from 2026 to 2032. Based on the requirements, the EPA estimates that the market penetration of BEVs in the U.S. will skyrocket from 5.6% last year to more than half, 55% to be precise, in 2029 and further to 67% in 2032. That is, two out of three new cars will be BEVs, and PHEVs are not even included in the analyses. As I surmised in an article a few months ago, with China leading the global EV industry in the last two years, other major markets are bound to respond. It will be far from surprising if EV sales surpass gasoline vehicle sales worldwide by 2028. Now that the EPA is imposing tougher emissions regulations on automakers ahead of state governments, local automakers will no doubt be forced to accelerate electrification efforts and forego continued, cost-ineffective R&D investments in gasoline powertrains. The EPA's move is in line with Euro VII emission standards proposed by the European Commission last November, intended to prompt automakers to shift to EV R&D ahead of schedule without wasting any more time on increasing fuel efficiency or decreasing pollutant emissions of gasoline vehicles. Having garnered both positive and negative reactions from American automakers, the new, strictest-ever rules are crucial to the development of American and Japanese brands, which currently have the largest market share, in the next decade. It just so happens that American and Japanese automakers are lagging behind their Chinese and Korean counterparts in EV development efforts. The U.S. government was able to stop Chinese automakers from building factories in the U.S. with the introduction of the IRA (Inflation Reduction Act) last year, but how will it stop Korean automakers from cracking the EV market in the coming years? It is safe to say the landscape will change significantly in the U.S. car market in a couple of years. American automakers will see their market share continue to decline if they fail to enter the EV arena at full throttle in time.
Embracing the era of EVs entails not only product development by car manufacturers but also design and planning of the charging ecosystem in a large country like the U.S. The Bipartisan Infrastructure Bill, signed into law by President Biden at the end of 2021, earmarked US$7.5 billion for the construction of public charging facilities, but even so, it is nowhere close to keeping up with the progress of EV adoption in a country as vast as the U.S. Take China's market, the total number of charging piles in operation is expected to reach 9.3 million by 2025, representing a cumulative investment of US$25 billion, and the difference in price indices between the U.S. and China is not even factored in. Of course, private operators in the U.S. will also be investing more resources in the charging ecosystem. However, the fact that American consumers are used to driving long distances (the U.S. does not have a comprehensive high-speed rail system like China) poses an insurmountable challenge to EV range and the optimal density/distribution of charging stations. The EPA's recent legislation merely brought to the surface the underlying concerns about the development of the U.S. car market and the impediments to the local auto industry as it moves toward the era of EVs. The road to an EV penetration rate of 50% or higher by 2029, as the EPA estimates, will be rough for the U.S. without the help of an army of Chinese EV and charging pile manufacturers.