The California Air Resources Board (CARB) voted Thursday to require all new cars and light (pickup) trucks sold by 2035 to be zero-emission vehicles.
The vote will upend the car industry worldwide, although it must be said that the US industry has already started adapting itself to that outcome well before the vote, unlike Japanese makers which have headed down the hybrid route instead of pure EVs.
And with the US actively discriminating against Chinese companies, especially in the supply and manufacture of batteries and their raw materials (metal and lithium, for instance), the California vote will spark an additional upheaval, especially with the first step of the new rule – a requirement for 35% of all new car sales to be zero emission vehicles by 2026.
Toyota, which had strongly opposed the move and supported attempts by the Trump administration to undermine California’s ability to set national standards, has reversed itself and has now signed on to support the move.
California has led the nation in auto emissions regulation since CARB was created in 1966 to combat notorious smog that hung over Los Angeles.
The state’s size – America’s largest and the biggest state economy – has meant carmakers can’t ignore the state’s mandates.
Congress gave California permission to set its own rules under the Federal Air Quality Act the same year. California’s emissions and fuel efficiency rules have been adopted by more than a dozen other states.
Trump tried to take that away, but it was reversed by the Biden Administration.
The mandate will force carmakers to phase out petrol and diesel cars, sport utility vehicles, minivans and pickup trucks in favour of cleaner versions powered by batteries or fuel cells.
If carmakers fall short, they could be charged $US20,000 for each noncomplying car.
Electric cars are rapidly gaining popularity in California. In 2012, less than 2% of new vehicles sold were electric. That grew to 7% in 2018.
But demand has surged since, and now 16% of new cars sold in the state are plug-in vehicles — battery electric, led by Tesla (its first factory is based in the state at Fremont); plug-in hybrid vehicles; and a smattering of cars that run on hydrogen fuel cells.
There are now 1.13 million zero-emission vehicles registered in California—43% of America’s total.
Under the new rules, 35% of new cars must be zero emission by 2026, 68% by 2030, and 100% by 2035.
The vote doesn’t stop people from buying petrol powered cars outside California and importing them into the state but seeing the surrounding states follow the Californian standard, car buyers will have go to Texas or the Midwest and then drive the vehicle to the West Coast.
Petrol powered cars can continue to be driven in California after 2035 and it will still be legal to buy and sell used fossil-fuel cars and light trucks. Watch entrepreneurs head into the second and third hand petrol powered vehicle market where car dealers like Carmax and AutoNation already operate.
The mandate doesn’t cover all highway transportation. Heavy trucks that use diesel will have 10 extra years before they’re banned. A proposed zero-emission mandate for heavy trucks wouldn’t hit 100% until 2045.
But electric truck makers like Rivian are already active in building and selling their vehicles.
The Californian vote is ‘gold’ for the global green metals and battery companies and their suppliers – non more than the booming lithium groups here and offshore.
Pilbara Minerals, Allkem, SQM and Albemarle have all shown investors that there are huge amounts of money now being made in the lithium battery business.
This week Contemporary Amperex Technology Co. Ltd (CATL), the world’s largest EV battery maker, revealed a more than doubling of second quarter earnings as the Chinese government continued to roll out incentives to maintain EV sales in the midst of disruptions caused by Covid-driven lockdowns.
CATL, whose clients include Tesla, Volkswagen and BMW, reported a net profit of 6.68 billion yuan ($US974.61 million) in the June quarter, according to analysts.
Earnings jumped 164% on the June quarter of 2021 after revenue surged more than 260% to 64.29 billion yuan in the three-month period, from 24.91 billion yuan a year ago.
That turbocharged revenue and earnings for the June half year.
CATL reported earnings for the six months through June 30 jumped 82% year-on-year to 8.17 billion yuan ($US1.2 billion), far above analyst estimates of 6.39 billion yuan.
Revenue for the half jumped 156% to 113 billion yuan and again above the 102.6 billion yuan some in the market had been looking for, but less than the 123 billion yuan other analysts had been forecasting.
CATL said that a COVID outbreak during the period, which included lockdowns in several cities including Shanghai, had some impact on its domestic market. Demand, however, remained strong as local authorities rolled out incentives to promote EV sales and companies launched new models.
EV sales growth bucked an overall trend of weakening auto sales in the major markets of China, Europe and the United States, which were hit by COVID and supply chain issues, CATL said.
In China, EV sales jumped 120% in the first half, while overall vehicle sales fell 6.6%, according to the China Association of Automobile Manufacturers.
But higher metal prices, especially for lithium cut CATL’s profit margin on EV batteries, which fell sharply to 15.04% from 22% at the end of 2021.
CATL said it had taken measures including signing long-term contracts with suppliers, recycling materials and negotiating a dynamic battery pricing scheme with automakers to ease the pressure of rising costs.
CATL also confirmed it was accelerating overseas expansion via supply contracts to customers such as Mercedes-Benz and BMW in Europe and Ford in the US.
It announced earlier this month that it would build a $7.6 billion battery plant in Hungary, Europe’s largest so far with Mercedes Benz.
CATL’s global EV battery market share hit 34.8% in the first half, extending its lead with a 6.2 percentage points increase from a year ago.
South Korea’s LG Energy Solution followed CATL with a share of 14.4%. BYD is third with 11.8%.
LG Energy Solutions is nowhere near as buoyant as CATL or the lithium miners and suppliers.
In July, LG Energy Solution reported a 73% slump in second quarter operating profit declined to 196 billion won ($US149.48 million) for the April-June period from 724 billion won a year earlier (which included a large one-off profit).
It is a supplier to Tesla, GM, VW and Ford.
China’s Passenger Car Association has lifted its 2022 new-energy-vehicle sales forecast 9% to 6 million deliveries, a marked improvement after Covid-related lockdowns in Shanghai and an economic slowdown that has hit consumer sentiment.
Bloomberg reckons global EV sales this year will total 10.6 million, meaning China will have close to 60%.
But the new Californian standard will see a dramatic surge in US sales over the next three years.
