One of the greatest disruptions in the automotive industry since Henry Ford's assembly line is the transition from internal combustion engine-propelled vehicles to those propelled by electricity. This election season could be followed by regulation that attempts to speed that transition. Changes in regulations could affect any of the following:
1. Corporate average fuel economy standards
If vehicle mpg requirements are raised, automakers and their suppliers may choose to speed up investments in EV technology. Inversely, if CAFE standards are frozen, or even relaxed, it could slow the transition to EVs.
Increased mpg standards force the auto industry to employ additional technology to meet those standards, and that investment in technology is likely to increase the cost per vehicle. Automakers may also decide to speed the introduction of EVs rather than sink cost into ICE vehicles if new regulations support that move.
If companies need to increase R&D for either type of technology, then this may lead to additional acquisitions or speeding up existing ones if businesses need to acquire the technology, manufacturing output or both.
2. Air quality/emissions standards, carbon footprint, Paris Accords
Policies may be enacted that raise air-quality targets and that could lead to the adoption of the Paris Accords or similar standards. This could improve air quality but also could result in a per-vehicle increase in cost to pay for the additional technology needed to reduce emissions.
Because automakers could see the spend to meet new air-quality standards as sinking investment into a nontarget technological area, it could have the effect of speeding the transition from ICE to EVs. Greater emphasis on carbon emissions, which require some automakers to purchase carbon credits from EV manufacturers, may increase the speed of the transition from ICE to ACES (automated, connected, electric and shared vehicles).
This is evident in the case of Fiat Chrysler Automobiles purchasing $2 billion in credits from Tesla, for example. Greater emphasis on carbon credits would also increase the funding of pure-play EV companies and drain investment from legacy automakers, making it harder for them to compete in the EV world.
Each of these decisions will benefit different subgroups of suppliers, affecting their manufacturing footprint, merger-and-acquisition activity and a number of other areas that also drive system needs.
Alternatively, policy may go in the other direction toward lower air-quality standards, which may slow the transition to EVs.
This could lead to new state regulations that impose higher air-quality standards, in the vein of the recent California emissions standards. A difference between state and federal air-quality regulations means multiple targets that automakers have to address, which would prevent potential scale in purchasing.
3. Lithium ion recycling/disposal
There has not been a lot of discussion of lithium battery recycling or disposal. However, lithium ion batteries do need to be handled as a hazardous material. Pro-EV policy could lead to an increase in EV sales, which would generate a higher volume of battery disposal down the line.
Once this disposal effort becomes an issue, it's likely the same sustainability sentiment behind pro-EV policy decisions will drive regulation of battery recycling and disposal.
This increase in regulation could increase the per-vehicle cost if additional technology is required to streamline the recycling process. Policies around sustainability could act to either accelerate or slow EV adoption.