Aug 30, 2019

Axios Navigate

Joann Muller

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Smart Brevity count: 1,440 words, ~5 minutes.

1 big thing: The fight over fuel economy

Illustration: Sarah Grillo/Axios

As the debate over fuel economy standards escalates, automakers are desperately trying to forge a compromise between the goals of the Trump administration, which wants to weaken current rules, and California, which favors growing stringency.

The big picture: It's rare for companies to beg for regulation, but nothing could be worse for the auto industry than a split market, where some states have stricter rules than others. A drawn-out court battle would be just as bad, creating regulatory uncertainty.

  • A predictable 50-state solution would let them focus on other concerns, like a slowing global economy, trade disputes, U.S. labor negotiations and new mobility initiatives.
  • On Thursday, the U.S. Chamber of Commerce's Global Energy Institute called for a nationwide compromise.

The intrigue: While pushing for a solution, carmakers are tiptoeing around political land mines, fearful of angering Trump, who has already lashed out on Twitter and is still weighing big tariffs on auto imports that could wreak havoc on their business, according to multiple industry sources.

Yes, but: Consumers are the wild card. They have shown little interest in hybrids or electric vehicles to date. Tougher fuel economy standards won't reduce greenhouse gas emissions unless people choose to buy cleaner vehicles.

Where it stands: The Trump administration is planning to freeze annual emissions standards starting in 2020, rather than letting them grow stricter as envisioned under Obama-era rules that almost everyone — even California — now agrees are not achievable.

  • The EPA, as part of that plan, would seek to strip California's special permission under the Clean Air Act to set its own emissions standards (which 13 states and the District of Columbia follow.)
  • Sensing a showdown, 4 automakers — Ford, Volkswagen, Honda and BMW —last month signed a voluntary agreement with California that set standards in between Obama's lofty targets and Trump's 2020-level freeze.
  • The California deal would increase greenhouse gas standards 3.7% a year (compared to Obama's 5% targets) for 2022-2026, with as much as 1% of that coming from credit multipliers for plug-in hybrids, EVs and other advanced technologies. (Trump's plan would eliminate the use of credits — a sore point for automakers.)

The context: With smaller, turbocharged engines, lighter body materials and other fuel-efficient technologies, automakers have been improving fuel economy and reducing CO2 tailpipe emissions by about 2% per year, according to the EPA.

  • Adding more hybrids and electric vehicles to the mix should increase the rate of improvement.

But, but, but: Trump argues that if fuel efficient technologies are too expensive, consumers won't trade in their older cars, and will miss out on the life-saving benefits of new safety features like automatic emergency braking.

  • In fact, safety ranks much higher than fuel economy on shoppers' lists of considerations, according to virtually every consumer survey.

What to watch: Although industry forces are lining up against the president's policy proposal, Trump's ire against California could be stronger. If so, the fight will no doubt wind up in court — exactly what automakers fear.

2. Emissions credits are like gold
Expand chart
Data: EPA Automotive Trends Report 2018; Chart: Andrew Witherspoon/Axios

One way carmakers comply with increasing fuel economy standards — even without selling many hybrids or electric cars — is by using regulatory credits they stockpiled from previous years or purchased from competitors.

  • But that flexibility is at play in the current fight between the Trump administration and California over fuel economy regulations.

Why it matters: The standards are getting tougher now, and companies are not only drawing down their banked credits; they've stopped generating new ones, too. That could drive up their trading value, enriching some companies with credits to spare, while putting others at risk of non-compliance.

How it works: Each manufacturer has its own compliance target, based on the number of vehicles produced and the size, or "footprint," of the vehicles in its fleet.

  • As an incentive for compliance, the government gives extra credit multipliers for advanced technologies like plug-in hybrids and electric vehicles.
  • Companies can also earn credits for other technologies that make cars more efficient, like flexible-fuel capability, LED lights, tinted windows, ventilated seats, and air conditioning improvements.
  • That flexibility gives carmakers important "wiggle room" to achieve targets they might not otherwise hit.
  • In 2016 and 2017, as emissions targets increased, all but a handful of automakers had to rely on credits to help them across the finish line.

Credits may be traded among automakers, and Fiat Chrysler Automobiles, which specializes in thirsty Jeeps and Ram pickups, has been a frequent buyer. Honda, which leads the industry in fuel efficiency, is a frequent seller, according to EPA data.

  • More than half of currently available credits are held by 3 manufacturers — Toyota, Honda and Nissan-Mitsubishi.
  • Tesla, with its all-electric fleet, also hauls in revenue selling regulatory credits; last year it made $420 million selling credits to GM and FCA, Bloomberg reported.
  • In July, Tesla chief financial officer Zachary Kirkhorn told analysts, "We expect regulatory credits to become a more meaningful part of our business."

What to watch: Under current law, 92% of available credits will expire by the end of the 2021 model year. The availability of future credits will depend on how the fight between California and the Trump administration shakes out.

  • Trump wants to eliminate that flexibility; California's deal with the 4 automakers would preserve the existing system for banking and trading.
3. Robots invade campuses to fight munchines

Illustration: Sarah Grillo/Axios

Food delivery robotics company Starship Technologies announced it will use its newly acquired Series A funding to expand its services to 100 U.S. college campuses by 2022.

The big picture: Even though autonomous food delivery is still a developing concept, Starship is looking to narrow in on a population that values convenience over price and who doesn’t typically have kitchen access other than mini-fridges and microwaves.

Where it stands: Sidewalk bots that deliver food in metropolitan areas have encountered regulatory hurdles in the past. San Francisco temporarily banned them in 2017 and just issued its first permit this year.

  • With a university's permission, Starship's fleets in college towns can divert the typical regulation roadblocks from city councils whenever a vehicle startup seizes sidewalks and traffic-prone streets.
  • Testing the robots out in a college environment gives companies data to better navigate other, more dangerous environments like high-volume street crossings.
  • Several companies including Amazon, Postmates and Domino's have been investing in and testing out these small-wheeled robots.

Yes, but: Food service jobs, including delivery, are a staple in college towns. 43% of students in college full-time had a job in 2017. The number nearly doubled for part-time students, according to the National Center for Education Statistics. Growing fleets of sidewalk robots could disrupt a workforce dependent on relieving college tuition and living expenses.

The bottom line: As long as the market for food delivery continues its boom, the nascent autonomous food delivery business only has room to grow.

Go deeper: Watch an amusing student reaction shared by Starship.

4. Driving the conversation

Rule-making: Waymo urges U.S. to 'promptly' remove barriers to self-driving cars (David Shepardson — Reuters)

  • Why it matters: "Comments filed by automakers suggest it could take the agency until at least 2025 to complete a comprehensive rewrite of various safety standards," says Reuters.

FBI probe: Feds execute raids on UAW leaders in four states, seize cash and files (Robert Snell, Breana Noble and Ian Thibodeau — The Detroit News)

  • The big picture: The widening corruption probe comes as the union is trying to negotiate important labor contracts with Detroit automakers, and is likely to undermine rank-and-file confidence in their union bosses.

Eyes on the road: U.S. to test mirrorless, camera-based systems in autos (Bryan Pietsch — Reuters)

  • The big picture: Automakers have been adding cameras all around their vehicles, but not in place of traditional mirrors. The technology is already approved in Japan and Europe, per Reuters.
5. What I'm driving

2020 Kia Telluride. Photo: Kia

Last week, I drove from Detroit to Columbus, Ohio, in a 2020 Kia Telluride, the Korean carmaker's first vehicle designed specifically for U.S. customers, and boy, did they nail it.

Why it matters: Kia has come a long way in terms of quality and customer satisfaction and the new Telluride, its largest vehicle ever, checks all the boxes: bold styling, smooth handling, a sharp interior and appealing technology.

Details: The Telluride comes with a 291-hp, 3.8-liter V-6 engine and an 8-speed automatic transmission.

  • It has room for 8 with a second-row bench seat but my 7-passenger SX AWD came with optional captain's chairs.
  • The quilted nappa leather seats and genuine wood trim across the dash made it feel more luxurious than its $45,815 price would suggest.
  • Driver-assistance features were plentiful, including: standard blind-spot monitoring, automated emergency braking with pedestrian detection, lane-keeping assist, and rear parking sensors.
  • On two-lane country roads with no shoulder, I got more lane-keeping warnings than I would have liked, but the technology did its job.
  • A helpful feature for parents: a reminder to check the back seat upon exiting the vehicle.

The bottom line: The Telluride is a great family SUV. Too bad I was on the road all by myself.

Joann Muller