Democrat-led California is generally known to be the most regulated state in the country, imposing tight rules on various industries. Reportedly, the Golden State has the strictest standards for emissions on motor vehicles, leading to downstream impacts on the auto industry.
As a large and influential state, California can use its market size to influence trends nationwide, compelling automakers to conform to its standards. California Gov. Gavin Newsom has often boasted about this influence, touting it as the “California Effect.”
According to reports, top car manufacturer Stellantis is set to fire thousands of employees in Detroit and Ohio as it adjusts its production to adhere to California auto regulations targeting traditional gas-powered combustion engines. Additional layoffs could occur throughout the auto industry as more companies attempt to meet California’s regulatory requirements, dealing a massive blow to a significant portion of domestic industry.
“The California standards have a huge impact,” Marlo Lewis, senior fellow at the Competitive Enterprise Institute, explained. “Both the [Environmental Protection Agency] in its proposed greenhouse gas motor vehicle standards and the National Highway Traffic Safety Administration (NHTSA) in its proposed corporate average fuel economy (CAFE) standards cite California’s [zero-emission vehicle] mandate as driving vehicle electrification in the U.S. Moreover, under Clean Air Act Section 177, other states may opt into California’s ZEV and [greenhouse gas] standards — if those policies are lawful in the first place, which of course California and its state and federal agency allies claim is the case.”
Director of the Center for Energy, Climate and Environment at the Heritage Foundation, Diana Furchtgott-Roth, explained that automakers are inclined to adjust their manufacturing practices across the board as having different cars for different states would be costly and inefficient. “The standards have a large effect because automakers don’t want to make different cars for different states,” she said. “That is why California affects the rest of the country. In addition, another 16 states have voluntarily said they will copy California’s laws.”
Lewis also explained how this would negatively impact the middle and working class, who would be coerced into purchasing electric vehicles, which tend to be considerably more expensive than gas-powered vehicles. Moreover, American households are already strapped for cash as historically high inflation has devoured their budgets over the past couple of years.
“Considering the losses and layoffs we’ve already seen, the effects on the auto industry could be devastating,” Lewis noted. “Millions of middle-income households are already priced out of the market for new motor vehicles. Ford’s F-150 Lightning costs about $14,000 more than the comparable internal combustion engine (ICE) model. Energy analyst Robert Bryce reports that during second quarter 2023, Ford lost $72,762 for every EV it sold, and that in July, Ford projected $4.5 billion in EV-related losses by year’s end—more than double the company’s $2.1 billion EV business losses in 2022.”
Furchtgott-Roth echoed Lewis’ statement, illustrating the financial impact this market coercion would have on the American consumer. She further explains the implications of the auto regulations on the dynamic between American industry and reliance on China.
“The standards will raise the costs of transportation, disproportionately hurting poor people, small businesses and farmers,” Furchtgott-Roth added. “Some people like EVs, but others find them to be more expensive, inconvenient to charge, and difficult in cold climates because they lose range. Plus, these EVs make America depend on China. The auto industry is losing money trying to comply with the standards because people are not buying electric vehicles in sufficient quantities.”
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