John Eichberger |
January 2025
Every year, people prognosticate that “this will be a critical year for [insert particular issue].” At TEI, we are not prone to declarative statements, recognizing that everything is nuanced and the factors that influence the direction of the transportation market are too numerous to list. Yet, I cannot help but wonder how this year will play out relative to the recent past. Below are some things I am personally going to keep my eye upon for clues to how things may proceed. I also encourage you to consider joining us at TEI’25 (registration is open) where we are going to dive deep into the market impact and reaction to global, federal and state policies, business relationships and consumer behavior to help us better understand what might transpire in the next several years.
- Inauguration of President Trump – Like everyone in the United States and around the world, I am anticipating a very different tone coming from Washington effective at Noon on January 20, 2025. President Trump has clearly articulated a policy agenda that stands in stark contrast to his predecessor, including as it relates to the transportation energy sector. Declaring his intent to establish “energy dominance” in the United States, it is generally expected his policies will be much more supportive of domestic energy production, less focused on carbon emissions mitigation, potentially devoid of climate change references and less enthusiastically supportive of electrification. Yet, I am also realistic about his ability to dramatically and radically change policy.
I have no doubt that the message from the White House will mirror his policy priorities. I fully suspect the Biden greenhouse gas tailpipe rules and various incentives to promote electric vehicles at the expense of combustion vehicles will be on the chopping block, but we must remember that the federal government was designed to move slowly. Many of the policies with which the President takes issue cannot be written off the books by executive order, they might require an act of Congress and/or extensive rulemaking, slowing his ability to affect change in some areas. Therefore, while the message and direction will certainly change almost immediately, the actual impact on the regulatory requirements of market participants is likely to take longer. It is worth noting that it took Trump three years to reverse Obama’s fuel economy standards and Biden three years to reverse Trump’s. How quickly and substantially can President Trump undue existing policies and enact new policies that could affect the direction and pace of change in the transportation sector? - Global Leadership Shift – An article in the Wall Street Journal on December 28, 2024, “The Progressive Moment in Global Politics is Over,” struck me as very interesting. The tone of the presidential election in the United States could be dismissed as a domestic anomaly, but this article makes me wonder if it may be more pervasive. Our colleagues in TEI’s Canadian Transportation Council talk about momentum in Canada that could see the current Liberal Party leadership replaced in 2025 by the Conservative Party, which could move to repeal the country’s zero emissions vehicle mandate, reconsider the carbon pricing scheme and potentially undue the Cleaner Fuels Regulation. Looking overseas, the political trends in Germany, and potentially even in the U.K. and other countries, are showing similar signs of change in leadership. We have already witnessed European governments shelving (at least temporarily) some climate regulations in order to shore up their energy supplies after Russia cut off the natural gas pipeline supplying the continent. Are we about to witness a shift in priorities in influential countries that could slow or reverse the climate agenda that has compelled the transportation industry to accelerate its push to wean itself off of fossil fuels?
- Electric Vehicles Market Share – Some have expressed the opinion that Trump’s policies will undermine the progress made in vehicle electrification. I disagree. Sure, federal policies have helped accelerate the production and availability of vehicles, and supported consumer purchase, but I think the impact may be overstated a bit. According to the Department of the Treasury, in the first five months of 2024, approximately 150,000 consumers purchasing EVs leveraged the available tax credit. According to Wards Intelligence, through May of 2024 the U.S. sold 437,000 EVs, which means the credit was applied to about one-third of vehicle purchases. I recognize there are many other programs supporting electrification, but this is one example of what I consider to be an overstated impact. A couple of reasons for the lower-than-expected utilization of the tax credit could be that the primary buyer of the EVs sold last year earned too much money to qualify for the credit or that too many EVs did not satisfy the made-in-America requirement for vehicle eligibility.
It is also clear that the vehicle manufacturers are not solely swayed by domestic policy. Their production plans span longer than the four years between presidential elections and they have to focus not only on the U.S. but European and Asian markets as well as consumer demand and preference. During a TEI Board call shortly after the election, the general consensus was that the election would not result in dramatic shifts in production plans and long-term strategies.
I believe the EV market will continue to expand because automakers have begun delivering electric vehicles that consumers actually want to buy, such as crossover utility vehicles. This is the number one selling vehicle type in the country by far, and the number one model in this category is the Telsa Model Y. As the vehicle technology improves, as infrastructure expands and costs become more competitive, I believe EVs will continue to expand on their current market share of 7.8% of sales in 2024.
- Liquid Fuel Demand – As many know, I cut my teeth in this industry representing the convenience and fuel retailing industry and I still pay close attention to how the evolving transportation market might affect my friends running stores throughout the nation. For years, many have been predicting peak oil demand, peak gasoline demand and forecasting a significant reduction in gallons consumed. This hits fuel retailers hard because close to two-thirds of their sales are generated at the pump and if consumers stop buying as much fuel that could affect the overall profitability of their stores. But according to the U.S. Energy Information Administration, gasoline consumption on an annual average basis has declined just 3% from 2015 – 2024. This does not mean there won’t be a reduction in demand going forward, I believe there truly will be. The advancements automakers have made in fuel efficiency gains in recent years are extraordinary and that will affect per capita consumption. Look at the chart above relative to the spike in hybrid vehicle sales as evidence of how the industry has taken efficiency seriously.
Most of the data I have reviewed indicates that the expansion of the driver population is unlikely to offset this efficiency gain enough to negate the reduction in overall demand. For retailers, the silver lining is that manufacturers are reducing the size of their fuel tank as efficiency improves to reduce weight, which partially offsets the frequency with which consumers will have to visit a fuel retailing facility. In addition, despite the hype regarding electrification, vehicles equipped with a liquid fuel-powered combustion engine represented 92.2% of all vehicles sold last year and, according to Oak Ridge National Laboratory, those vehicles will remain on the road for a very long time. (Half of vehicles sold today will still be in operation in 16 years.)
Final Observations
It is easy to assume that political trends will influence everything, and while it is true they do exert influence policies alone do not dictate the direction of the market. To really understand what is or what might happen, we have to look broader, including global, federal and state policies, business-to-business relationships and obligations, consumer demand and long-term strategic viability. By considering at least these components, we can start to have a better perspective on what is going on in the market. I encourage you to join us May 19 – 21 in San Antonio for TEI’25, our annual conference, when we will focus specifically on these areas and seek some clarity about what the next several years might hold for the transportation sector and how individual businesses can thrive.