Right now, the Trump administration is planning to reduce corporate average fuel economy standards for light-duty vehicles.
Under the proposed changes, US automakers would be required to reach fuel efficiency of 34.5 miles a gallon by model year 2031 for passenger cars, although there is still some uncertainty over timings. This is down from a previous target of 50.4 miles a gallon.
With compliance balanced across the fleet, the changes will also have a significant impact on the supply-side incentive to produce and sell electric vehicles (EVs).
The So What
This is a significant deregulatory move for the US auto industry.
“From powertrains to size, the mix of vehicles sold in the US has been heavily influenced by regulation for very many years. With deregulation, customer demand is now the sole north star for OEMs,” says Aakash Arora, who leads BCG’s automotive and mobility division in North America.
“Automakers need to develop an even deeper understanding of what their customers want and can afford—and then meet that demand faster than ever.”
Automakers have been buffeted by changing policies and regulations in recent years. But this latest change removes some uncertainty for the next seven to 12 years, Arora notes. Even if the fuel-economy targets were to be re-instated under subsequent administrations, there would likely be significant lead times for a comprehensive reversal.
The planned regulatory changes are expected to have significant implications on the projected growth of the EV sector, making it harder to secure investment in charging infrastructure or advanced battery technologies. This then risks becoming a reinforcing cycle where the lack of range and charging points deters further sales.
Elsewhere, the EU is also amending its emissions regulations for new cars in changes that will grant automakers more flexibility to sell a small share of combustion engine cars beyond 2035.
That means European OEMs with a global footprint are facing a strategic stretch: They must simultaneously serve a rapidly electrifying Chinese market, a US landscape that largely remains anchored in internal-combustion engines, and a European market evolving at an intermediate pace.
“Meeting these divergent trajectories will demand additional capital expenditure— from sustaining multi-traction product portfolios to investing in localization and differentiated technology roadmaps across regions,” explains Albert Waas, who leads BCG’s automotive work in Europe.
“With market-dynamics coming to the fore, automakers around the world will need a laser focus on affordability and customer needs,” says Felix Stellmaszek, who leads BCG’s global work in the sector.
“That means speed and precision are going to be the defining and differentiating factors in the decade ahead.”
Stay ahead with BCG insights on the automotive industry
Now What
Dial up deep customer understanding. With customers calling the shots more than ever, it will be essential to have optimal market intelligence around product and price. AI can be used to crunch dynamically changing data points on a micro-level, including footfall in showrooms and the multiple economic indicators that influence consumer behavior. Machine learning can then be applied for demand forecasting. These customer insights should be rapidly translated into bottom-up demand planning and go-to-market strategies.
Reset EV strategies. In the US, BCG estimates that electric vehicles will account for 8%–12% of new-car sales, with outcomes highly dependent on customer response to upcoming launches. At these penetration levels, OEMs should rethink their planned capital expenditure and operating costs, and reassess their product portfolios in light of shifting demand patterns and the relative affordability of alternative models.
Automakers should also revisit expected returns on investments in charging infrastructure, being mindful of the vicious circle that may emerge. The ability to accurately forecast—and cost-effectively meet—customer demand for electric and hybrid vehicles will be critical to success.
Use AI for customization and personalization. The power of AI and GenAI can be harnessed across all stages of the value chain, from OEMs, to suppliers, and dealerships. It can boost campaign effectiveness, especially around marketing, sales, and pricing, and opens the door for more hyper-personalization. The effective use of AI will also drive cost reductions and accelerate the speed to market.
Prioritize flexible manufacturing networks. The need for optimal levels of speed and precision will require manufacturing networks that can quickly adapt to changing levels of demand. Increased flexibility needs to be incorporated into manufacturing plants, as well as supplier relationships, supply chains, and systems for volume allocation.
