Consumers must come first in fuel-efficiency debate
MTAA CEO Matt Hobbs calls on common sense from government around the nation’s first new-vehicle emissions standardCOMMENT
The advent of electric cars spelling the death of the weekend has been well and truly put to bed with more Australians driving an EV than ever before.
While EV uptake is on the rise, the government is now looking to step in and regulate, potentially accelerating the rate of adoption.
But at what cost?
Earlier this month, the Australian government announced its New Vehicle Efficiency Standard (NVES).
The reaction to the standard, which aims to get more fuel-efficient cars onto the road, has been mixed to say the least, with warnings that some brands will exit the market altogether, to calls for the government to go even harder.
What’s missing from the commentary is what this new regulation will actually mean for consumers.
What cars will be available to Australian drivers in five or 10 years’ time and how will it affect the hip pocket?
The entire automotive industry – car-makers, car dealers, repairers through to recyclers – have been calling for a fuel-efficiency standard for at least 15 years.
The Gillard government attempted to regulate in 2010 followed by each subsequent government, but this time the Albanese government looks set to go all the way.
Fuel-efficiency standards are in place all over the world. Even the Kingdom of Saudi Arabia has had one for nearly 10 years and fuel is 20 cents a litre there!
We must remember, however, that the devil is in the detail.
How quickly the industry can reduce its emissions is based on the government’s backroom projections of what low-emission models each car-maker could bring to Australia to offset the higher emitting vehicles they wish to continue to sell – the ones many of you love and need like utes and large SUVs.
It’s easy to be idealistic or pessimistic when it comes to modelling the impacts of a fuel-efficiency standard. From visions that we’ll all be driving an EV in five years’ time to a market where utes and SUVs disappear altogether.
Obviously, these extremes are both highly unlikely and the outlook is more complicated.
If the government’s crystal ball is correct, consumers will continue to access the vehicles they want while emissions steadily decline. If not, the industry will face a dilemma – how to offer popular categories at a price close to today while avoiding penalties.
At the Motor Trades Association of Australia (MTAA), we’ve been doing our own forecasts. Our initial assessment is that consumers will continue to access the vehicles they want but it may not be from the brand they currently own, especially as the targets get tougher in 2028 and ’29.
We must remember that the Australian car market is always evolving and it will continue to do so with or without the NVES.
Twenty years ago, as an example, the number one car sold was a Holden Commodore and utes made up a small fraction of sales. Five years ago, the Toyota HiLux was the top-seller and today it’s the Ford Ranger. Three years ago, Tesla was a niche luxury brand – now it’s a mass-market brand and on track to sell 50,000 units per year.
The most logical question therefore is: ‘what if in two years’ time it becomes obvious that the NVES is adversely impacting consumer choice and price?’.
The government is proposing a review but understandably industry is insistent that the regulation is flexible enough to ensure that consumers receive guaranteed access to the range of cars and utes they want and need at a reasonable price.
Car manufacturers are not the only industry players impacted. Drivers need their cars serviced and repaired, fixed after a crash and ultimately sustainably recycled. Mechanics must be trained and ready to work on EVs and a nationwide network of fast and reliable chargers must be in place for EV drivers.
The government cannot expect that everything will fall into place and the industry will adjust without hiccups. This new regulation means large-scale structural change for the sector.
Protections for car dealers, which are typically small to medium businesses, must be put in place if a car manufacturer decides to leave this market because they cannot be profitable under the NVES.
To understand how car-makers may respond to the NVES, there are five options available to them:
- Purchase CO2 credits from low-emitters like battery-electric OEMs. The cost of the credits will effectively increase the price of the vehicles for which the credits are applied, but would be more cost-effective than incurring the penalty
- Increase the range of EVs, hybrids or small ICE cars in their model line-up. Consumers would have to buy these vehicles in sufficient volume for this strategy to be effective
- Limit the availability of large vehicles lowering their average CO2 number. This would mean either limiting stock or increasing price – neither being a positive outcome for consumers
- Explore every potential fuel-saving technology on existing high-emitting models to reduce their CO2 numbers
- Jointly develop low-emission models with other OEMs, thereby sharing R&D costs and potentially avoiding costly penalties
Which option car-makers will take depends on their global plans, their investment in low- and zero-emission technology now and in the future, and how important Australia is to their operations.
What is certain, however, is that if an OEM is paying a penalty or buying credits, this will have to be factored into costs and the price of the vehicle will rise.
Through industry vehicle intelligence, the MTAA is reviewing each car company’s position under the proposed regulation. Of course, they won’t disclose their plans publicly, so we are doing our best to anticipate their responses.
In our assessment, there are a number of very popular brands that have a significant challenge ahead to meet the standard. We doubt, however, that the big players will leave Australia.
We do have some idea from their public statements that several car-makers are working on a range of new eco product, including utes and 4x4s. Ford has announced that it is introducing a plug-in hybrid [Ranger] ute next year.
If it sells well, they have an easier path to meet their target. Similarly, each car company has top-secret model development programs aimed at meeting these standards around the world.
It’s always easier in business to keep doing the same thing. The Australian government is challenging the whole industry to step up and do better. We are up for the task, but the stakes are high. We need the government to work with us, hand in hand, as a partner.
The Motor Trades Association of Australia (MTAA) represents the state and territory motor trades associations and automotive chambers of commerce. Their members include over 3200 car dealers, 7800 repairers and 1700 body shop businesses.
Related: What Australia’s New Vehicle Efficiency Standard means for consumers
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