A new analysis by Citi and the Ceres’ Investor Network on Climate Risk, “CAFE and the U.S. Auto Industry: A Growing Auto Investor Issue, 2012-2020” (PDF), finds that the Senate proposal to raise fuel economy standards for U.S. cars and trucks will have only a minor impact on shareholders of auto companies, according INCR.
“Our analysis reveals that the 2020 target is tough but attainable, requiring aggregate improvements of 2.5 percent a year, and – surprisingly – generating some growth in variable profits for most automakers,” wrote Citi.
The analysis comes as Congress is considering new legislation that would raise fuel economy standards for passenger vehicles to 35 miles per gallon by 2020, about 40 percent or 10 mpg above today’s levels. The CAFE standard has not been significantly raised since Congress originally adopted it 32 years ago.
The report concludes that tougher CAFE standards, which it predicts will come into effect before 2012, can be met “with modest additions of existing technologies” and will likely be “most beneficial to General Motors and least beneficial to Chrysler.”
Automakers are expected to partly rely on shifting sales mix to more fuel-efficient models to meet tougher CAFE standards, but the most profit-maximizing approach appears to be through investments in fuel-savings technologies – higher efficiency internal combustion engines, in particular – applied to cars and trucks alike.
Big winners will be suppliers of key technologies such as turbochargers, automated manual transmissions and diesel engine fuel injectors. These suppliers stand to gain $4.3 billion in growth by 2012 and even more by 2020.
A study released in July from the University of Michigan’s Transportation Research Institute found that Detroit automakers would gain market share and increase profits under CAFE’s proposed new fuel economy standards.