NADA Chief Economist;New CAFE standards to raise ICE MSRP $3k-$7k between 2018-25

RobStark said:

But Szakaly(NADA Chief Economist) said that potential industry growth beyond that resurgence(now til 2018) will be crimped because of product decisions that will be forced to meet regulations(CAFE 54.5 MPG)

“As retailers, we always welcome competition(ROTFLMAO) and we welcome a wide variety of vehicles,” he said. “But we also want to make sure that consumers have choice and they’re able buy the car they want. It’s a major issue looking out beyond 2018.”

“It’s very hard to see a successful way that either the industry can avoid significant losses, or we cannot see a major impact on sales due to regulation."

“Unless gasoline prices rise significantly, or we see consumers becoming irrational and everyone buying an electric car, it’s tough to think of consumers willing to pay $3,000 to $7,000 more for the exact same car, just because someone in Washington, D.C., or California says they need to buy it.”


http://www.autonews.com/article/20140805/OEM11/140809903/fuel-regs-will-stymie-industry-after-2018-nada-economist-says


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I have never crunched numbers but I have always believed that the combination of lowering cost of BEVs due to the GF plus the price increases due to cost associated with meeting new CAFE fuel standards which rise to 54.5 MPG by 2025 would mean the the cost of BEV powertrain would drop below the price of a comprable ICE powertrain.

The MSRP of a Model S ICE competitor should rise by ~$7k and the price of Model 3 ICE competitor should rise ~$5k.

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Funny that "consumers becoming irrational" is equated with buying an electric car. These people will do anything, say anything, to deny that the future is here.

Not surprised at his myopic forecast. On my recent road trip along CA-1, we kept checking GasBuddy for the cheapest prices around. Most of them were at Costco. And on most occasions, there were lines several cars deep. Not that I minded a 10-15 minute wait to save a few bucks. But it made me think that as gas prices inevitably go up, that it will become more and more competitive and crowded at low-cost gas retailers. I don't think it will be ultimately be mandates coming out of D.C. or Sacramento that get people into EVs. It will be practical, real-world ranges (100+ mpg), reasonable price points, and the ability to charge for about 1/5 the price of filling up.

I'm saving this for my "funnies" section lol. Good find... jeeze the chutzpah

mershaw2001 said:

Funny that "consumers becoming irrational" is equated with buying an electric car. These people will do anything, say anything, to deny that the future is here.

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Funny that consumers becoming irrational includes buying a car that'll save them money in the long run.

Much or all of the price increase will be recaptured by the consumer in the form of lower fuel costs, which is why you don't hear much from consumer groups against CAFE. But higher sticker prices make it harder for auto dealers to upsell all their bells and whistles, as buyers are already seeing a big number and are fairly myopic about the potential for gasoline cost savings (as we all know from the issues of communicating the lower total cost of ownership of EVs). So, the CAFE-related price increase hits dealers in the pocketbook. Poor dears.

RobStark said:

I have never crunched numbers but I have always believed that the combination of lowering cost of BEVs due to the GF plus the price increases due to cost associated with meeting new CAFE fuel standards which rise to 54.5 MPG by 2025 would mean the the cost of BEV powertrain would drop below the price of a comprable ICE powertrain.

The MSRP of a Model S ICE competitor should rise by ~$7k and the price of Model 3 ICE competitor should rise ~$5k.

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Yes, you are right in that conclusion. Here are a few related data points:

This is from the latest ER conference call:

Rod A. Lache is from Deutsche Bank.

<Q - Rod A. Lache>: If you took a step back and thought about the trajectory for this in the next 10 years rather than the next three years, what do you see on the horizon? Is there a case for $100 per kilowatt hour pack in 10 years?

<A - Elon R. Musk>: I would be disappointed if it took us 10 years to get to $100 kilowatt hour pack.

<Q - Rod A. Lache>: So basically, you're saying that within the next - within that timeframe, you would expect electric vehicles to reach cost parity and maybe even improve upon the cost of an internal combustion vehicle?

<A - Elon R. Musk>: Yes.

<Q - Rod A. Lache>: That's interesting. That's a pretty big statement that you're making.

<A - Elon R. Musk>: It seems pretty obvious to me.

This is from the subsequent research report written by him:
Tesla believes battery pack costs can fall below $100/kWh in “much less than 10 yrs”. If true, such a development could have broad implications for Tesla and for the broader Auto Industry, as it would imply an outright cost advantage for Tesla’s EV’s vs. internal combustion alternatives. We note that the conventional internal combustion powertrain typically costs OEMs >$5,000 per vehicle. And this cost is expected to double over the next 10-years (per the National Academy of Sciences, U.S fuel economy targets will add $5,000 in cost). For comparison, Tesla’s 200 mile range Model 3 is expected to have a 48 kWH battery pack; a $4800 cost at $100/kWh. Even if we add in the current cost of inverters, e motors, and other EV specific equipment, the cost of an EV Powertrain should be well below $5500," he added.

http://www.streetinsider.com/Analys...ments+on+Tesla+Motorss+(TSLA)+Q2/9711965.html

@RobStark, keep in mind that the new CAFE standard is not a single number, but a mathematical function that depends on the physical footprint of the vehicle. So, it's not obviously harder to hit the target with a big car than with a smaller one.

Why does CAFE have an accent on the E in that article? It's not a word, it's an acronym (Corporate Average Fuel Economy). Sloppy copy editing.

CAFE is kind of a boondoggle anyway. The straightforward way for the government to drive improved fuel economy would be to just straight up increase taxes on fuel (ideally as part of a carbon tax). Congress does CAFE instead because it allows them to pretend they're imposing the cost on manufacturers instead of consumers. As if manufacturers aren't just passing on the cost.

But yes, his comment about electric cars is just childish and dumb. Obviously if the TCO of an electric car is lower then buying one is entirely rational. Glad to see there are some comments on the article calling him out on it.

RobStark said:

@RobertBoston

The same is true for Europe with kg of carbon output per km.

But smaller cars with smaller engines is always the practical result.

The loophole for trucks in CAFE is not closing but getting smaller.

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No, the EU approach and the CAFE approach are significantly different, even if the final targets are similar.

EU approach encourages substitution of big cars with smaller cars as an alternative to technological improvement.
The entire Smart marque exists to balance the larger Mercedes vehicles for the targets
if the EU approach was applied to USA, it would result in a diversion from improving the efficiency of Ford F-series, to subsiding the sales of a Fiesta class vehicle.
The end results, a bifurcation in the market with more small cars and more pickup trucks. This has obvious real world safety implications.

CAFE is at its core, intended to get carmakers to offer vehicles as if there was a higher gas price, without actually having a higher gas price. Ie to raise the technology basis of the vehicles, instead of reducing the scope (size) of the vehicle. The cost neutral was of doing this is to uptech the engine/gearbox, while down cylinder count of the engine. Ie substitute V6 instead of V8, substitute I4 instead of V6 , substitute CVT instead of auto trans. etc.

SBenson said:

<Q - Rod A. Lache>: If you took a step back and thought about the trajectory for this in the next 10 years rather than the next three years, what do you see on the horizon? Is there a case for $100 per kilowatt hour pack in 10 years?

<A - Elon R. Musk>: I would be disappointed if it took us 10 years to get to $100 kilowatt hour pack.

<Q - Rod A. Lache>: So basically, you're saying that within the next - within that timeframe, you would expect electric vehicles to reach cost parity and maybe even improve upon the cost of an internal combustion vehicle?

<A - Elon R. Musk>: Yes.

<Q - Rod A. Lache>: That's interesting. That's a pretty big statement that you're making.

<A - Elon R. Musk>: It seems pretty obvious to me.

Click to expand...

Either this, or the 'cards we're not showing', or the 'you don't know what we know' were my favorite parts of the earnings call.

RobStark said:

CAFE does save consumers money but for the first decade or two after an increase like this that almost doubles a large part of the savings is due to the fact that consumers ending up buying smaller cars with smaller less powerful engines.

CAFE was introduced in 1975 and it took til the early 90's for cars to reach the average size and power they were before 1975.

By 2025 most of the legacy automakers will be selling ICE golf carts that get 54.5 MPG and Tesla will be selling bigger more powerful cars that get over 100 MPGe on average.

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The target's not that hard. The $7k's on some of the larger vehicles, but the fact that quite a few hybrids already meet the target shows that for cars it shouldn't need $7k, especially since we can expect a downward trajectory on the price of the batteries and power electronics.

Even if we add in the current cost of inverters, e motors, and other EV specific equipment, the cost of an EV Powertrain should be well below $5500," he added.

-------So excluding the battery pack, the cost for rest of an EV Powertrain(inverters+Motor+others) is less than (5500-4800)=$700??? What's the cost for the power train except the battery pack in a Model S 85?

It's total ******** to argue that there are only 2 variables in the equation: fuel economy versus price.

If you look at the data it is pretty obvious that over the last 30 years vehicles have vastly increased in mass and power, while fuel economy has stagnated.
In 1983 the average vehicle was 3257 pounds, had 107 horsepower and got 21 miles per gallon.
In 2013 the average vehicle was 4041 pounds, had 230 horsepower and got 24 miles per gallon.

Move the mass and/or power sliders, and you can drastically improve fuel economy without touching the price slider.

Data from the EPA:
Document Display | NSCEP | US EPA

PDF form:
http://nepis.epa.gov/Exe/ZyPDF.cgi/P100HE2R.PDF?Dockey=P100HE2R.PDF

You're right RobStark and I was wrong. It seemed that EU added a weight based limit value curve in 2012 which approximates CAFE's footprint curve.

My country has neither, but higher gas prices and state level annual rego fees (that increase with cylinder count) have delivered a marked increase in fuel economy (even if cabin space has stayed fairly constant). Only problem is Ford/ GM and Toyota are closing manufacturing here, and the industry will cease to exist in a few years.

RobStark said:

Consumers don't want those options. They want big powerful cars with lots of safety equipment and lots of power equipment like power/heated/cooled seats with ear drum blowing infotainment systems. That is what NADA Chief Economist is arguing. Most consumers don't want a Prius stripper.

And outside the green consumer he is right.

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According to the manufacturers consumers didn't want seat belts, airbags, or anti-lock brakes. They didn't want crash testing, safety glass, or bumpers.
I don't think anyone should listen to them about what consumers want.

I also think you are wrong about consumers. Most people buy the Prius because it saves them money on gas, not because it is green.
Lots of people who are not green will put fuel economy into the equation when they buy, they need better choices. If gas was properly priced, many many more would factor it, and factor it much higher.