EPA Deregulation: A Boost for Legacy Automakers, a Test for EVs

News Analysis

A recent proposal by the Environmental Protection Agency (EPA) could be a shot in the arm for traditional automakers, who have been heavily impacted by climate regulations and tariffs. At the same time, it could push electric vehicle (EV) makers to compete on product, price, and experience rather than policy, potentially benefiting both sides, according to some experts.

On July 29, the EPA released a proposal to rescind the 2009 Endangerment Finding, which regulates greenhouse gas emissions from vehicles and trucks and provides the legal foundation (stemming from a U.S. Supreme Court decision in 2009) for many climate-related regulations.

The EPA stated that climate regulations have created significant uncertainty and imposed substantial costs on the traditional manufacturing industry, limiting affordable car options for American consumers.

“With this proposal, the Trump EPA is proposing to end 16 years of uncertainty for automakers and American consumers,” EPA Administrator Lee Zeldin said during a presentation at an auto dealership in Indiana.

Greenhouse gas regulations established standards for light-, medium-, and heavy-duty vehicles, as well as heavy-duty engines. The EPA introduced its first greenhouse gas regulation in 2010 for light-duty vehicles, followed by standards for medium-duty cars and heavy-duty vehicles and engines in 2011. These rules included off-cycle credits, such as the commonly criticized start-stop feature found in most new vehicles.

Coming on top of previous climate regulations, and supplemented by additional rules during the Biden era, greenhouse gas regulations imposed an enormous cost on traditional carmakers. They tilted the competitive field in favor of EV-makers, who received a host of government subsidies, adding to hidden taxes for American taxpayers.

The EPA’s proposal promises to change this situation.

“If finalized, rescinding the Endangerment Finding and resulting regulations would end $1 trillion or more in hidden taxes on American businesses and families,” Zeldin said.

A Shot in the Arm

Meanwhile, it will be a welcome relief for the struggling traditional automakers, who have been operating with low net profit margins due to the costs of implementing these regulations.

For the period 2010–24, General Motors’ net profit margins stayed in the range of 3–4 percent, while Ford’s net margins have been all over the map, ranging from around 2 percent in 2010, to 0.85 percent in 2014, 13.6 percent in 2021, and 1.7 percent in 2025.

Low net margins have resulted in low return on invested capital (ROIC). GM’s current ROIC is 3.47 percent, well below its weighted average cost of capital (WACC) of 3.99 percent. Ford’s situation is far worse: its ROIC stands at negative 0.04 percent, far below its WACC, which stands at 3.6 percent.

Companies with returns on invested capital that lag their cost of capital erode shareholder value as they grow.

Adding to the downward pressure on net profit margin and ROIC is the imposition of tariffs, as the two automobile companies have chosen to absorb them rather than pass them on to consumers.

“GM has held prices relatively steady despite tariffs, choosing to absorb the additional costs while shifting some auto production to the U.S. and holding out hope for better trade deals with Mexico, Canada, and South Korea,” Jay Cushing, senior bond analyst at Gimme Credit, told The Epoch Times.

“Given existing vehicle affordability issues, we remain skeptical that volumes can be sustained at current levels without discounted pricing, particularly if the economy slows.”

Cushing also sees Ford facing $2 billion in tariff headwinds in 2025 ($3 billion gross, net of $1 billion recovery factors).

Meanwhile, Ford welcomed the EPA proposal and said deregulation policy changes will lead to fewer emission credit purchases and improved profit going forward.

Ford CEO Jim Farley said during an earnings call last week that the company has already saved nearly $1.5 billion in costs related to CO₂ credit purchases, and that “further changes will balance standards and customer choice, and have the potential to unlock a multibillion dollar opportunity over the next two years, primarily in Ford Blue.”

“Ford Blue” refers to the company’s internal combustion engine vehicle division.

Farley said that the EPA policy change will provide the company with greater flexibility regarding its product mix and production volume.

“Once finalized, this will provide further opportunities to improve profits next year and beyond,” he said.

“Deregulation would be a net benefit to U.S. automakers from lower compliance costs and easier production,” Nic Adams, co-founder and CEO of cybersecurity firm Orcus, told The Epoch Times.

“For example, deregulatory efforts to reverse more stringent fuel efficiency standards mean larger, gas-guzzling cars that don’t set consumers on fire can enter the marketplace and have been historically profitable. In addition, it lessens R&D [research and development] obligations for incentivized technologies and removes expensive penalties for non-achievement on efficiency metrics.”

Competition on Merit

However, BJ Birtwell, CEO and founder of Electrify Expo—a leading organizer of EV-focused consumer events—believes that removing mandates and incentives will drive broader EV adoption in the United States.

“EVs were wrongly politicized from the start, making them a virtue signal rather than a practical form of transportation, like they are today,” he told The Epoch Times.

“New buyers aren’t choosing electric for environmental reasons—they’re doing it because EVs are affordable to own, cheaper to operate, and a lot more fun to drive. When the U.S. government tells Americans what to buy, it makes half the population skeptical about its motives.”

Birtwell believes that removing these government initiatives will attract skeptics to the EV market, prompting automakers to compete on product, price, and experience rather than policy.

“What we’re seeing now is the EV industry moving along the traditional S-curve … out of the early adopter phase and into the early majority. That’s the point where the product must win on merit alone, and EVs are ready for that,” he said.

According to an Experian Automotive report, EVs accounted for 9.2 percent of all new-car registrations in the United States in 2024. Meanwhile, a recent study by data provider Escalent finds that a more mainstream group—known as early majority EV consumers—is showing growing interest in how vehicles are powered, especially battery electric models.

Carl Rodriguez, head of marketing and founder of NX Auto Transport, is skeptical about the net effect of deregulation on traditional automakers, believing that deregulation may affect conventional automakers as they have been investing heavily in EVs.

As a result, they could take a hit as EV subsidies fade away.

“So the playing field doesn’t get levelled. It just shifts the advantage from subsidized newcomers to key players who have been playing the game for a while now,” he told The Epoch Times. “If anything, the incentives could have led to a more level playing field to begin with.”