California Faces Long Road to End ICE Car Sales

California faces a long and potentially difficult road toward its planned phaseout of conventional cars by the middle of next decade, which was approved by regulators earlier in the week.

Yet the fuel implications of a successful phaseout would be significant, and the accelerating uptake of electric vehicles (EV) suggests the Golden State's ambitious goal is achievable.

California's new rule requires all new vehicles sold in the state by 2035 to be all-electrics, plug-in hybrids or fuel-cell electrics. These vehicles would need to represent a rising share of automakers’ sales each year on the way to 100% by 2035.

The plan was approved by the California Air Resources Board on Thursday and follows an executive order issued by Gov. Gavin Newsom in 2020.

EVs represented just over 16% of California's overall car sales in the first half of 2022, according to the California Energy Commission.

Going from 16% to 100% will be a big leap. Then again, the 16% share represents a doubling in just two years, suggesting that 100% is possible if the market for EVs remains in high gear.

California's EV penetration is also well above the national average: Overall US EV sales represented 7% of total light-duty vehicle sales in July, and hovered in the 5%-6% range throughout the first half of 2022.

Potholes and Roadblocks

Of course, banning conventional cars is controversial and still faces significant technological hurdles. Some of these obstacles are expected to fall away this decade as technology advances and the market scales up.

Many observers are watching for a game-changing inflection point at which lower-priced batteries would bring EVs into price parity with conventional cars — or even make them cheaper.

This point could be reached by the middle or end of this decade due to falling battery pack costs, although global supply chain issues could delay this by about two years versus previous forecasts, according to analysis from Energy Intelligence Research & Advisory.

In terms of convenience, EV driving ranges have already been significantly increased since the first EVs went on sale over a decade ago. Fast-charging technology is also advancing, but at a slower pace.

Pushback

Banning conventional cars is naturally controversial — especially with inflation hiking auto prices and inflicting pain at the pump for drivers.

Many oil industry players that would stand to lose demand for their products have also been quick to point out the obstacles to large-scale EV uptake.

“We only have 11% of the needed charging infrastructure for this plan,” argued Catherine Reheis-Boyd, head of the Western States Petroleum Association in California.

Some oil industry groups may also pursue legal action against the California ban.

Fuel Implications

Eliminating conventional cars in California could put a substantial dent in fuel demand in the world’s largest oil-consuming nation.

The Golden State represents roughly 10% of US consumption, much of that from the auto sector, according to the US Energy Information Administration. California is the second largest oil-using state after Texas.

California regulators are predicting modest changes in vehicle sales and emissions trends through the end of this decade, followed by a sharp acceleration from 2030 to 2035. Gasoline car sales would decline by 2.9 million units by 2030 versus the number that would be sold without the new policy, according to the California Air Resources Board (CARB).

That would rise to 9.5 million fewer conventional vehicles by 2035. By 2040, emissions from light-duty vehicles would be cut in half versus 2026 levels, while greenhouse gases would be lower by 915 million barrels of oil equivalent, CARB estimates.

The demand implications could reach further if other states follow suit. In the past, up to a dozen states in the US Northeast and the Pacific Northwest have typically matched California’s vehicle policies, and Washington state has already indicated it will follow California's lead on this policy as well.

California's move is part of a wider global trend to phase out conventional cars. Transport has become a centerpiece of climate action as emissions from the power sector have fallen in many parts of the world.

Similar policies are in effect or under way in places like China, Europe, the UK, Canada and Chile.

Further, many global automakers have set similar targets to turn their portfolios entirely over to EVs by 2035.