Auto Biggies Sidestep Trump, Seal Emissions Deal With CARB

Five major automakers including Ford F, Volkswagen VWAGY, Honda Motor HMC, BMW AG BAMXF and Volvo Cars have finalized a legal agreement with the California Air Resources Board (“CARB”) to cut vehicle emissions in the Golden State. The move brushed aside previous threats from President Trump and would require automakers to comply with tougher emission standards than the federal rules in a bid to curb tailpipe pollution.

Four companies namely Ford, Honda, Volkswagen and BMW entered into an agreement with California in July 2019 to voluntarily increase fuel efficiency and cut emissions, dismissing Trump’s plans to roll back vehicle pollution standards. In September, Trump sent California a stern warning that the state’s tailpipe deal could violate federal law. Trump’s administration brushed off the California deal as a voluntary stunt.

However, yesterday’s agreement adds legal teeth to the deal announced last summer. It makes the voluntary pact among the five major automakers and CARB enforceable. The agreement, under which the companies will boost the fuel efficiency of vehicles sold in the United States through 2026, comes in direct defiance of Trump’s weaker federal rules on vehicle emissions and fuel economy.

Trump administration finalized a rollback on U.S. vehicle emission standards in March 2020. According the Obama-era rules, automakers were supposed to achieve a 5% annual increase in fuel efficiency each year through 2026. The new rules by Trump would require just 1.5% annual increase in efficiency through 2026. California led a regulatory revolt against the rollback of emission standards and stands its ground by vowing to stricter environmental regulations. Volvo Cars, which announced the intention to join the California agreement in March, is part of the legal settlement finalized yesterday.

One of the leading economies in the world, California has always been steadfast in pursuing policies to tackle global warming and coming up with some of the most aggressive climate policies. Under the California agreement, the carmakers will be required to increase their average fuel economy from about 38 miles per gallon to about 51 miles by 2026. Improving fuel efficiency will result in lower emissions of greenhouse gas, while saving money for customers. The deal encourages speeding up the transition to electric vehicles (EVs) and is likely to help in the creation of several jobs. There are 13 other states following California’s standards that have agreed to enforce the new agreement.

The auto giants have agreed to step up their EV game. The carmakers believe that the stringent emission standards will not only address the climate issue but also bring consumer-focused innovation to the market and foster the production of EVs, which is the road to future mobility.

Other auto bigwigs including General Motors GM, Fiat Chrysler Automobiles FCAU and Toyota TM did not join the California agreement as they intend to adhere to the more lenient standards set forth by Trump. While General Motors and Fiat Chrysler hold a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively, Toyota carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Ford Motor Company (F) : Free Stock Analysis Report
 
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