Fuel Efficiency Continues to Improve/ Stiff MPG Standards Adopted in the U.S. (CAFE Rules) and Abroad

The light truck market, including pickups and vans, is of vital importance due to several factors. To begin with, for auto manufacturers, gross profits per light truck unit can be many times higher than the profits made from small, highly fuel-efficient cars. However, light trucks burn more fuel than smaller cars, having an effect on both a manufacturer's total CAFE average fuel efficiency and on the total demand for gasoline.

CAFE (corporate average fuel economy) standards were first issued by U.S. federal regulators in the 1970s as a method of setting average fuel economy standards for carmakers. Previous standards under the Obama administration called for manufacturers to sell a portfolio of light-duty cars and trucks averaging 54.5 miles per gallon (mpg) by 2025. In late 2021, the Biden administration raised vehicle mileage standards to 40 miles per gallon by vehicle model year 2026, and then the following year raised the standard to 49 miles per gallon for 2026. CAFE rules may eventually become less important since many of the world’s top auto manufacturers have pledged to release many more electric vehicles over the next several years, with some firms promising soon to be all-electric. However, a slowing of sales of EVs as of 2024 may make the standards more difficult to achieve. BMW expects one-half of its new vehicles to be all-electric by 2030. Volkswagen is investing in standardizing electric components such as batteries and software across its brands, including Audi and Porsche. The net effect will eventually be a dramatic reduction on the number of gasoline cars and light trucks on the road.

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