The March 31, 2020 EPA ruling on fuel economy and CO2 emissions is important because it sets minimum environmental targets for light vehicles sold in the US for up to the next six years. This ruling provides the necessary certainty for investments and technology compromises for the next generations of vehicles. In 2019, the new fleet achieved a 25.5 mpg real-world fuel economy, and CO2 emissions were 346 grams/mile. The 2026 real-world target, announced on March 31, is less than 33 mpg (40.4 mpg compliance) and requires an improvement of a 1.5% annual increase in emissions (compared to the 5% set by the previous administration).

Carmakers can realistically achieve these targets despite the shift in segments and decreasing price of oil, which can lead consumers to choose less efficient models. Carmakers will need to continue improvements in ICE (Internal Combustion Engine) powertrains, apply mass-saving strategies, and pursue efforts toward electrified powertrains. The California Air Resources Board (CARB), however, and the 22 states that agree with CARB have set 20% more stringent targets for 2026. Ford, Honda, Mercedes, and BMW support the CARB targets. The CARB targets are likely to require a much heavier dose of mass-saving and electrification initiatives than the targets announced by the EPA. GM, FCA, and Toyota support the current administration’s targets.

DuckerFrontier’s automotive and materials experts are closely monitoring the impacts of this new ruling and the impact on vehicle weight reduction. Below are recent insights from our experts:

  • The North American auto industry has been preparing for this announcement ever since the EPA proposed changes to drop CO2 advancements post-2021 (in fact, several OEMs have picked sides; some are siding with the more stringent CARB requirements, and others are supporting EPA requirements).
  • Many OEMs producing and selling vehicles in the US have vehicles that are produced and sold in markets outside the US; therefore, they have to monitor and develop shared vehicle architectures with powertrains that adapt to the least common denominator, which likely includes Europe and select markets in Asia.
  • Given more stringent CO2 goals in the EU, some OEMs have elected to reduce their exposure to those markets, while aligning their production footprints in the US to light trucks (SUVs, CUVs, pickups, etc.), which have lower CO2 goals compared to passenger cars.
  • The 1.5% annual CO2 savings goal outlined by the EPA’s SAFE plan also implies a share of BEVs and PHEVs, which is again lower than what CARB has outlined.
  • Powertrain improvements will form the basis of improvements expected to yield over 50% of the expected savings; electrification in all its forms will also contribute 20–30%. Mass savings through the use of advanced grades of steel and aluminum could also contribute over 10%.
  • CARB has not relinquished its rights to set its own CO2 standards; however, together with 22 other states, CARB sets 20% more stringent standards for OEMs—Ford, Honda, Mercedes (Daimler), and BMW support the CARB-outlined CO2 goals.
  • The policy is a great start and will require a very careful mix of powertrain improvements, including engine “right-sizing,” multi-gear transmissions, direct-injection, turbos, start/stop, etc., along with electrification and mass-saving initiatives.
  • Today, given what we know about OEM vehicle-model-release cadence, we can certainly expect a steady increase in the use of advanced grades of steel and aluminum in all its product forms (sheet, castings, extrusion, and forgings) to achieve the 1.5% annual CO2 reduction goals.
  • The conversion of heavier materials to mass-saving, lighter-weight materials is necessary, especially given how technology enhancements for comfort, convenience, and safety are increasing the mass of vehicles.
  • The absence of this policy, along with the sustained low price of fuel, would have likely had a detrimental effect.

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry. How can we help you deliver the best performance for your business in 2020? Contact us to connect with an automotive industry expert.