Struggling electric vehicle (EV) manufacturers have been seeking a tailwind but didn’t quite get one from the U.S. Department of Energy. Under final rules released Tuesday, legacy automakers will receive significantly more mileage credits for building electric-powered vehicles. As well, they will have more time to meet updated fuel-economy standards, thus impacting the relevance of pure-play EV stocks.
According to a Reuters article, the ruling means that automakers will be able to manufacture more gasoline-powered vehicles through 2030 while still meeting overall Corporate Average Fuel Economy (CAFE) requirements.
In April 2023, the Energy Department proposed rules revising its “Petroleum-Equivalent Fuel Economy” rating. This measure would have lowered the compliance value of EVs by 72% in 2027. Now, the final rule will reduce the rating requirement by 65% while extending the deadline through 2030. Therefore, the decision enables automakers more time to adjust.
Under the 2023 proposals, the automotive industry expressed concerns that several companies would face billions of dollars in fines. In particular, General Motors (NYSE:GM) would have been hit with a $6.5 billion penalty, while Stellantis (NYSE:STLA) would face fines of $3 billion.
Pure-Play EV Stocks Stumble on Competitive Concerns
While the legacy auto giants may be breathing a sigh of relief, the same cannot be said for stakeholders of pure-play EV stocks. Several names, including Tesla (NASDAQ:TSLA), Rivian Automotive (NASDAQ:RIVN) and even Chinese EV manufacturer Nio (NYSE:NIO) incurred red ink on Tuesday.
Fundamentally, the government ruling hands traditional automakers a lifeline. The matter puts more time on the clock, thus limiting the relevance of EV stocks. With more breathing room, automakers can start innovating and develop their own solutions. Given that the major companies enjoy brand heritage and longstanding customer loyalty, the less stringent requirements evens the competitive playing field.
Further, the ability to continue to manufacture more gasoline-powered cars through 2030 comes at a sensitive time for EV stocks. First, the sector is under significant demand pressure. Tesla attempted to get ahead of the situation by slashing prices, thus catapulting a sector-wide price war. However, the move ended up hurting the industry, including Tesla itself.
Second, many consumers are likely questioning the viability of all-electric mobility platforms. Earlier this year, extreme winter weather conditions in certain regions left many EV drivers stranded. Therefore, the reprieve that automakers have now received indirectly makes EV stocks less attractive.
Why It Matters
Notably, environmental advocacy groups urged EV mileage rating reductions after the Energy Department left the rating unchanged for two decades. They argued that high ratings would mean only a few EVs would be compliant while sacrificing substantive improvements in innovation.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
