▲ Graph of the Biden administration's strengthened fuel efficiency regulations (Image source: Eugene Investment & Securities)



Fine for non-compliance with CAFE increased from $5.50 to $14
Fuel efficiency requirement ↑8% in 2025 and 10% in 2026

The Joe Biden administration is strengthening fines for automakers that fail to meet fuel economy standards as it aims to reduce emissions.

The National Highway Traffic Safety Administration (NHTSA) has raised its fuel economy target from an average of 1.5% per year under the Trump administration to an average of 8%, and has also increased the fine for failing to meet the Corporate Average Fuel Economy (CAFE) standards from $5.50 per mpg to $14 per mpg.

According to Reuters, the fines for failing to meet the Corporate Average Fuel Economy standards will increase significantly from $5.50 per mpg to $14 per mpg. NHTSA estimates that the fines will amount to at least $170.85 million (about 200 billion won). Starting with the 2022 model year, fines for failing to meet CAFE requirements will likely increase significantly. It also announced that fuel economy requirements will increase by 8% for both the 2024 and 2025 model years, and by 10% for 2026.

The new rules are expected to cut consumer fuel costs for new vehicles sold by $192 billion by 2030. The administration said it hopes the rule will encourage automakers to build more efficient vehicles, saving consumers money.

There are also predictions that this regulation could be a burden to consumers, as automakers will have to spend hundreds of billions of dollars to comply with the regulations, which could push up the average cost of a car.

NHTSA estimates that automakers will spend more than $200 billion by 2029 to comply with the regulations, and the average cost to the entire auto industry will increase by $1,087. GM, Ford, and Stellantis are also expected to spend more than $100 billion.

The EPA finalized vehicle emissions requirements similar to NHTSA’s in December. The Environmental Protection Agency estimates that the rules will reduce CO2 emissions by 3.1 billion tons by 2050, and major automakers have supported the EPA’s revisions.

The EPA and NHTSA plan to adopt another vehicle standard that will apply after 2027, and experts say automakers will ramp up production of electric vehicles to meet that standard.

While vehicle fuel efficiency regulations are becoming increasingly stricter, support policies are stagnant. A bill that would increase EV rebates to up to $12,500 per vehicle and provide generous tax incentives for automakers to produce EVs and purchase EV businesses has stalled in Congress.

“As regulatory requirements for automakers increase, there needs to be policies in place to support compliance and regulatory coordination with the EPA,” said John Bozzella, president and CEO of the Association of Automobile Manufacturers.

Meanwhile, some analysis has emerged that this regulation may benefit Korean battery companies.

Eugene Investment & Securities forecasted that electric vehicle sales will increase by an average of 53% per year until 2025 as fuel efficiency regulations and fines are significantly increased and the charging infrastructure budget is implemented. There is an observation that K-battery companies will drive market growth through joint ventures with U.S. automakers and achieve differentiated growth by entering the market together with not only cell companies but also material and parts companies.