Yesterday, the Trump Administration proposed rolling back fuel economy standards that carmakers have to hit. The Biden Administration set rules that carmakers had to improve their fleet average by 2 percent each year going into the 2030s. The rules weren’t really meant for carmakers to make that much progress on gas cars each year. Instead, in tandem with tax credits for EVs, the idea was that a carrot-and-stick approach would spur innovation by incentivizing the industry to move toward electrification, through both hybrids and full BEVs.
That was then. Yesterday, the Trump Administration rolled out new EPA rulemaking that would pare back that target from 2 percent annually, to just .5 percent annually. In plain math, that’s from a (fleet average) of 50.4 miles per gallon by 2031, to 34.5 MPG by 2031. At the White House yesterday, Trump said:
“Under the new rules being issued today by Secretary Duffy, the Department of Transportation will rescind the Biden fuel economy prices, and I hate to say that because they were really not economy. They were really they were anti-economy.” —President Donald Trump
Trump also said, “All the nonsense is being taken out of the cars.”
Parsing these statements is challenging. So let’s just do some simple math.
What’s The Difference Between The Standards?
Currently, the EPA average fuel economy of a gas-only Toyota RAV4 is 30 MPG (combined city/highway). The average fuel economy of the RAV4 hybrid is 39 MPG. The RAV4 was the most popular single model sold in the U.S. last year, which is what makes it a logical yardstick. But note that neither of those figures would meet the 50.4 MPG target of the Biden-era standards, and the 30 MPG of the gas-only RAV4 also doesn’t meet the proposed Trump rules of 34.5 MPG by 2031.
What Does It Cost Me?
The annual cost of fueling the gas RAV4, according to the EPA, is $2,300. That falls to $1,750 for the hybrid. Pencil that out over five years and you’re looking at a cost savings of $2,750. But for argument’s sake, the EPA says the annual “fuel” cost (in charging) of a 2026 Nissan Leaf will be $700, or $3,500 over five years. Compare that to the $11,500 to fuel the RAV4 gas model for half a decade, and you’re looking at a massive $8,000 savings to drive the electric car.
This is obviously why, even in the face of shifting policy, Toyota will offer several new EVs next year, and even though the Big Three sent representatives to the White House yesterday to cheer on the new Corporate Average Fuel Economy standards, all three are still working on development of EVs.
The Real Reason Cars Are More Expensive
Trump’s new rules are supposedly targeted at affordability. Unfortunately, there are three main drivers of rising costs for new cars that were not mentioned during the White House briefing—tariffs, tariffs, and tariffs, all taking different forms, and together, according to Kelley Blue Book, forcing up the average price of a new car this year by nearly 4 percent and above $50,000.
Tariffs On Cars, Metal, And On Auto Parts
First, 50 percent tariffs on steel and aluminum have been brutal on carmakers. There simply isn’t enough domestic metal production, and even though carmakers like the Hyundai Group are investing in milling in the U.S., that will take years to result in anything like a domestic supply bump. So the truck or car you want—that’s made of metal—is simply more expensive. And the larger the car or truck, the more that tariff bites.
Auto Content
Cars are made of parts. Even vehicles assembled in the U.S. by “American” carmakers use parts manufactured or machined elsewhere. The treaty negotiated under the previous Trump Administration between Canada and Mexico enshrined a pan-North American “factory floor” where parts shift across borders constantly. The new regime has pushed up the price of that operating structure. Even South Korean or Japanese carmakers that assemble cars in the U.S., like Honda (the leader in domestic-content U.S. assembled cars) are having to pay more for parts due to tariffs.
Speaking of which, all auto parts, like the ones to maintain the car you drive right now, are being hit in some way by these rising costs. If a supplier makes some of its electronics overseas and those parts are slugged with tariffs, they have to pass that on to consumers. Put simply, the bottom line hits the producers’ wallets, which means it hits your wallet.
A History Of Warped Policy
Sam Fiorani, an analyst and VP at the firm, AutoForecast Solutions, says that an unregulated market is just as faulty as an over-regulated one. He points out that way back in the 1970s, during one of several oil shocks when CAFE was first imposed, the regulations had the consequence of forcing automakers to make at least some affordable vehicles.
“High gas mileage models offset profitable low gas mileage models. While not good for corporate bottom lines, the unintended consequences of the regulations filled the market with low-priced models like the Ford Focus and Chevrolet Cruze.” —Sam Fiorani, Vice President, AutoForecast Solutions
The New Math Hurts Car Buyers
Fiorani said that when President Obama’s administration revised CAFE rules, it allowed carmakers to pretend that a vehicle like a Subaru Outback was a “light truck,” and so, according to Fiorani, “…manufacturers no longer had an incentive to produce small, inexpensive, and fuel-efficient cars.” Another analyst, Brian Finkelmeyer, Senior Director of Enterprise Insights at Cox Automotive, told me earlier this year that this forced carmakers that wanted to still sell affordable sedans to make their cars in Mexico, because of reduced labor costs. Finkelmeyer says distorted policies made it uneconomical for Ford, Stellantis, or GM to produce inexpensive cars in the U.S. Crossovers (as “light trucks”) are simply more profitable.
“The reason why they did away with all their sedans is they couldn’t make any money.” —Brian Finkelmeyer, Senior Director of Enterprise Insights at Cox Automotive
The EV “Mandate”
The Trump Administration argues that the EV credit market (that worked like fines against carmakers that couldn’t or wouldn’t sell enough EVs) warped the incentive structure around innovation. Federal rulemaking released yesterday claimed this credit market made it smarter for legacy brands to instead just trade for the credits, enriching EV-only manufacturers like Tesla, rather than investing in the tech themselves.
Fiorani, however, argues that eliminating ambitious fuel-economy standards will only harm consumers. Because without a spur to make more affordable, fuel-efficient cars, carmakers won’t bother, since the investment in R&D is costlier.
“Buyers aren’t demanding hybrids as much as manufacturers have added them for the improved fuel economy needed to meet regulations.” —Sam Fiorani, Vice President, AutoForecast Solutions
Fiorani says removing both the carrots and sticks from CAFE puts a cap on innovation carmakers have to bother with. “As long as 15 million buyers continue to show up for $50,000 vehicles, there’s no incentive to add lower-priced models.”
TopSpeed’s Take
There’s another component to all of this that should worry car buyers. Gas may be inexpensive right now, but there’s zero guarantee it will stay that way. For one thing, as the rest of the world—especially China—electrifies, oil demand will fall, and the incentive to invest in its production will also fall, driving up production costs. Meanwhile, the price of energy in this nation is rising, thanks to data centers. Fiorani points out that the U.S. has been here before, during the last oil shocks of the 1970s, when the U.S. consumer had no choice but to buy Japanese cars that were more fuel efficient. And U.S. carmakers aren’t dumb; they compete globally. They may have been at the White House applauding politely, but out of the other side of his mouth, Ford’s Jim Farley has admitted that China is going to win without radical change in his own company. It won’t come from Washington, but for their survival, that rethink is going to have to come from the American auto industry.
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