US Fuel Economy Rollback to Boost Gasoline Use, Slow EV Growth

The Trump administration’s drastic rollback of auto fuel economy regulations is expected to increase total gasoline consumption and bolster sales of internal combustion engine vehicles at the expense of electric ones, analysts said.

Under the U.S. corporate average fuel economy standards released Monday, the federal government will now require roughly 34.9 miles per gallon for vehicles by model year 2031, down from the 50.4 miles per gallon standard set under the Biden administration.

The move essentially dropped the requirements for automakers to build more fuel-efficient cars sooner. The Department of Transportation said the new policy will give automakers more flexibility to manufacture cars and reduce the average cost of a new vehicle by $1,300, among other things.

Neal Ganguli, managing director of automotive and industrial practice at global consulting firm AlixPartners, said he expects U.S. gasoline consumption between now and 2031 to be higher, compared to his previous forecast under the stricter fuel economy mandate.

However, he said the rollback is not the only driving factor for the expected increase in gasoline use over the next five years.

A combination of the end of the $7,500 federal credit for new EVs, relatively higher price tags and consumers’ range anxiety over EVs — along with the Big Three automakers’ popular and “hybrid, gasoline-heavy” trucks and sport utility vehicle models — also led to his higher gasoline demand forecast, Ganguli said.

“This underscores the fact that there is a going to be a tailwind toward ICE vehicles, which is going to result in more gasoline being used,” he said.

Automakers can now opt out of investing in more fuel-efficient hybrid technologies, or increase the powertrain performance to maximize the new fuel regulations for their new models, Ganguli said.

He estimates that the new fuel mileage mandate would lower the cost of each new vehicle by an average of $1,000, but it is uncertain whether the benefit would be passed down onto consumers.

According to AlixPartners’ forecasts, hybrid EVs — essentially ICE vehicles with an internal battery pack to boost fuel economy — are expected to accelerate their U.S. market share to 34% of all new cars in 2030 from 23% in 2026.

Meanwhile, the share of battery-powered full EVs is expected to grow from 6% to just 11% during the period. ICE vehicles are projected to remain half of all new cars in 2030, down from 69% in 2026, the consulting firm said.

John Bozella, chief executive of the largest U.S. auto industry group, Alliance for Automotive Innovation, said the new rule “better aligns fuel economy standards with the law and current market conditions.”

Bozella said the standards set by the Biden administration effectively required a switchover to EVs that was “out of step with market realities and customer demand.”

Ben Prochazka, executive director of Electrification Coalition, said the U.S. is more secured against global oil price volatility when vehicles consume less fuel. In addition, the U.S. is falling behind China and other global competitors as the rest of the world is increasingly shifting to electric transportation, Prochazka said.

“Cutting these standards creates market uncertainty, drives up fuel costs for consumers, and limits our global competitiveness,” he added.

AlixPartners’ Ganguli said that while the uncertainty over gasoline prices is a major factor for consumers in deciding which model to buy, it is unlikely that U.S. automakers will pivot back to investing heavily in EVs.

This is particularly true as most car companies have already expanded their powertrain and propulsion offerings, such as hybrids and plug-in hybrids, to meet the demand from consumers who are concerned about fuel prices, he said.

At a panel discussion at last week’s Climate Week NYC event, Energy Secretary Chris Wright said the U.S. government should not be “subsidizing” EV production.

“Let consumers choose what kind they want, what brand they want,” Wright said. “Let the marketplace compete.”

–Reporting by Frank Tang, frank.tang@dowjones.com and Allegra Fradkin, afradkin@dowjones.com; Editing by Dean Visser, dean.visser@dowjones.com

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