By Greg Genette, Analyst, Technical Research and
Andrej Divis, Research and Analysis Executive
Director
Potential changes to the US government beginning in 2025 will
likely shape the future of US climate policies, as leaders hold
differing views on climate action and major policy milestones
approach. The executive and congressional makeup will be crucial,
with Republicans likely pushing for significant changes in the
policy environment and Democrats favoring continuity.
This analysis will explore potential impacts on the medium and
heavy commercial vehicle (MHCV) market, notably vehicles above 6.0
metric tons and roughly equivalent to US Classes 4-8.
Where we stand today: Assessing the current
environment
The current US trucking market can be categorized into two key
areas: First, the economy and truck demand, and second, policy and
electrification. Our baseline forecast anticipates a modest
increase in the market overall and in the zero-emission segment.
With labor conditions loosening and inflation moderating, the US
Federal Reserve is expected to continue cutting interest rates in
2024, boosting truck demand after a period of over-capacity and
weak carrier profitability.
Truck sales are predicted to remain flat in 2024, but momentum
is expected to build toward a record-setting 2026 thanks to
improved economic conditions and the temptation to buy ahead of
2027 diesel-truck emissions changes. On the regulatory and policy
front, California's Advanced Clean Trucks rule and the federal
Greenhouse Gas Phase 3 emission regulations will shape the
industry's adoption of electrified vehicles through the midterm. We
believe the next 36 months are a critical make-or-break period for
industry zero-emission vehicle (ZEV) goals and aspirations. The
incoming presidential administration will have the opportunity to
shape the energy transition and the trajectory of overall new truck
demand.
Trucking through 2024: Evaluating potential
impacts
The potential impacts of a change in government can be
categorized and evaluated under the same two areas described
previously: the economy and truck demand, and policy and
electrification.
Economic growth and demand for new trucks could face two
new realities with a new administration taking office next
year. There are two primary pathways that could shift the existing
market demand forecast, primarily through new tariffs. The first
scenario predicts higher truck sales if the economy exceeds
expectations, with lower inflation, interest rate cuts and robust
consumer spending boosting demand beyond levels anticipated in our
baseline for 2025 and 2026.
Conversely, a second scenario anticipates lower truck sales due
to negative economic factors, including a potential trade war,
rising tariffs and decreased consumer confidence, impacting overall
economic performance and road freight trends. Beneath the surface,
it is also important to note that new tariffs could directly hinder
the adoption of electrified commercial vehicles, depending on the
details. Much of the battery supply chain is based in mainland
China, providing a cost advantage. Although efforts to localize
battery manufacturing and other critical components are ongoing,
the US is still years away from completing this transition. Higher
tariffs could discourage buyers by raising prices, further slowing
the energy transition in trucking, and it is not clear that such
policies would be associated with just one of the presidential
candidates.
In summary, from an economic and new truck demand perspective,
the key factor to watch regarding the influence of the new
administration on the broad truck market is the extent to which new
tariffs may be imposed, affecting macroeconomic indicators, new
truck demand and the costs of electric vehicle components and
batteries.
Under a new administration, regulations and the
prospects for electrification could face a complex new
future. Under current market conditions, zero-emission
trucks remain relatively expensive for many truck vocations
(applications) relative to a diesel truck, especially without
incentives. Therefore, our forecast assumes that stringent
regulations will be the primary demand driver for zero-emission
trucks through the late 2020s and into the 2030s. A shift to
Republican leadership is more likely to significantly change the
regulatory landscape for trucking in the US, introducing
uncertainty and risk to our zero-emission vehicle forecast. The
following paragraphs will explore potential scenarios and their
impact on our powertrain forecast. We will focus on three key
topics: California's regulatory waiver, the federal Greenhouse Gas
Phase 3 standards and the Inflation Reduction Act.
California's regulation waiver:
California's authority to set its own vehicle emissions
standards, granted under the Clean Air Act, was revoked by the
Trump administration in 2019 but reinstated by President Biden,
which enabled California's recent Advanced Clean Truck (ACT)
regulation.
Another revocation is one risk under a new administration, but
not the only risk in this time period. A pending Supreme Court
case, Ohio v. EPA, could challenge California's waiver, potentially
disrupting these rules and adding an element of uncertainty to the
future of this regulation, regardless of administration. However,
many truck manufacturers have committed to following the Advanced
Clean Truck rule regardless of legal outcomes, in what they are
calling the Clean Truck Partnership, reducing the risk of major
changes to market conditions.
In summary, completely eliminating this rule would substantially
lower our zero-emission vehicle forecast. However, for this to
become reality, several uncertainties would need to be
resolved.
Greenhouse Gas Phase 3:
The Greenhouse Gas (GHG) Phase 3 regulation, set to begin in
2027, mandates progressively stricter CO2 standards for
medium and heavy commercial vehicles through 2032. Although it does
not require the sale of ZEVs, it does encourage indirectly them
through the tightness of the standards.
We expect a Democratic administration to keep this regulation in
place and perhaps extend and tighten these emissions rules beyond
2032. A Republican administration may be more open to listening to
critics of the measure and perhaps rescind and weaken these
standards, potentially delaying their enforcement.
Meanwhile, the Supreme Court's ruling against Chevron Deference
could lead to increased legal challenges against EPA regulations,
adding further uncertainty to the trucking industry and the future
pathway for GHG regulations. Changes to delay or lessen GHG
standards are likely to diminish our outlook for zero-emission
truck adoption, particularly in the late 2020s and early 2030s.
The Inflation Reduction Act:
The Inflation Reduction Act (IRA), passed in 2022, allocated
$369 billion for climate and clean energy, including several key
investments for decarbonizing trucking. The IRA notably offered up
to $40,000 in tax credits for clean commercial vehicle purchases,
as well as incentives for infrastructure and clean hydrogen.
While a new administration may modify parts of the IRA, a full
repeal is unlikely, due to the legislative process required to do
so and due to the support for diverse parts of the legislation from
across the political landscape. Even so, the $40,000 tax credit is
not expected to significantly accelerate zero-emission truck
adoption in the near term owing to high costs and operational
challenges.
Conclusion
Under a Republican administration the following have the
potential to change:
A new government in 2025 could significantly impact the US
trucking industry by reshaping tariffs, regulations and climate
policies. Potential changes like revising California's emissions
waiver, rescinding and redrafting federal GHG Phase 3 standards,
and modifying provisions of the Inflation Reduction Act could
potentially slow electric truck and bus adoption. The timeline for
these changes, especially within the first 100 days, remains
uncertain. Key wildcards like the Ohio v. EPA case, the overturning
of Chevron Deference, and election outcomes in Congress could
further influence regulatory adjustments in this highly regulated
and economically sensitive industry.
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