US lifts penalties for car makers that fail to meet fuel efficiency standards, in big win for Tesla

The United States is doubling down on penalising carmakers who fail to meet fuel efficiency requirements in a huge win for Tesla and other EV makers and a move that could end up costing other automakers hundreds of millions of dollars.

According to a document from the US National Highway Traffic Safety Administration (NHTSA), seen by international news agency Reuters, penalties for automakers failing to meet fuel efficiency requirements are being boosted following several years of lax policing, the result of the Trump Administration’s anti-environmental stance on everything.

The Trump Administration in early 2021 agreed to a request from the US automotive industry to delay the start of higher penalties for companies failing to meet Corporate Average Fuel Economy (CAFE) requirements.

The US Congress had previously voted in 2015 to raise these fuel economy penalties to fall in line with inflation, which resulted in the NHTSA moving to raise the fines from $US5.50 to $US14 for every 0.1 mile-per-gallon new cars and trucks consume in excess of the required CAFE standards.

Originally intended to come into effect for 2019 model year new vehicles, the Trump Administration nevertheless decided to suspend the new regulations after several years of legal battles on both sides.

Unsurprisingly, that decision was backed by the US automotive lobby, which had predicted that the originally proposed increase in penalties could cost the industry at least $US1 billion annually.

On the opposite side of the fight, however, was Tesla, which had been pushing for the original NHTSA penalties to be instated as intended.

Because Tesla only produces electric vehicles it can sell emissions credits to other automakers, providing another source of revenue for the EV juggernaut. However, while penalties remain unaffected by the proposed increase, Tesla’s credits are less valuable, affecting the company’s revenue.

Tesla has therefore been fighting for the penalties to be reintroduced and, during 2021, was involved in several legal battles to that effect.

In one government memo filed during 2021, Tesla implored the NHTSA to withdraw the Trump Administration’s delays, saying that it “produces continuing uncertainty in investments and transactions across the industry, and any delays will continue to have deleterious effects on the credit market until the issue is resolved.”

The memo added that Tesla believes “any delays will continue to have deleterious effects on the credit market.”

Tesla’s legal battles, regardless of their altruism, or lack thereof, have finally succeeded, and in a NHTSA document seen by Reuters, it was confirmed that higher penalties will be reinstated and boosted further for the 2022 model year.