The Energy Department is rolling back fuel economy standards as electric vehicle sales decline

The central theses

• The U.S. Department of Energy backed away from its original proposal for fuel economy standards for electric vehicles as sales of battery-powered vehicles declined.
• The decision will make it easier for automakers to continue building gasoline and diesel-powered cars and trucks without exceeding company average fuel economy (CAFE) limits.
• The industry and the United Auto Workers union pushed for a relaxation of the rules because they feared companies would face billions of dollars in fines if they didn't meet the stricter standards.

As electric vehicle (EV) sales decline and automakers cut production, the Biden administration is making it easier for manufacturers to produce gasoline and diesel-powered vehicles while still meeting corporate average fuel economy (CAFE) standards.

The Department of Energy (DOE) announced final CAFE rules that delay and modify reductions in EV ratings due to noncompliance with the rules. In its initial proposal, the Department of Energy called for reducing the fuel economy (PEF) of petroleum-equivalent electric vehicles by 72% by 2027. The updated proposal lowers that figure to 65% and instead phases it in until 2030, a source told Reuters on Monday.

The decision will allow automakers to build more internal combustion engine vehicles and stay below the government's CAFE cap.

The Alliance for Automotive Innovation, which represents auto companies, and the United Auto Workers union advocated for the relaxed standards and warned that the stricter requirements would cost companies billions of dollars in penalties.

Shares of Detroit's three major automakers: General Motors Co. (GM), Ford Motor Co. (F) and Stellantis NV (STLA), all finished higher on Tuesday.