California Sets the Pace on Zero Emissions. Car Makers, Old and New, Are Cheering.

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California announced this week that it will ban sales of new gasoline-powered cars by 2035—and that’s great news for U.S. car makers.

After all, what happens in California, particularly in terms of cars, doesn’t stay in California. That‘s not just because California is the largest state, with more than 10% of the U.S. population of people and cars. Rules from California’s Air Resources Board, or CARB, are followed by more than a dozen other states, including some big ones such as New York and Pennsylvania. CARB rules touch almost 40% of the total U.S. population.

On its march to zero emissions, California wants 35% of new-vehicle sales to be zero emission by 2026 and 68% by 2030, before sales of gas vehicles are eliminated altogether five years later. That outpaces current federal goals by a considerable measure. President Joe Biden wants about 50% of new car sales to be EVs by 2030.

In the past, such a step would have brought squeals of protest from U.S. auto makers—but not anymore. Sometimes, CARB rules would even be challenged in court. Probably not this time. Not surprisingly, faster EV adoption in the U.S. means a bigger addressable market for

Tesla

(ticker: TSLA), but General Motors (GM) and

Ford Motor

(F) aren’t complaining, either. This time around, Ford praised the CARB decision. GM did, as well. “General Motors and California have a shared vision of an all-electric future,” says a GM spokesperson.

All of this makes sense. Traditional auto makers are all-in on electric and are spending billions of dollars to develop EVs and battery plants as fast as they can. GM wants to sell a million EVs a year in North America by 2025. Ford’s goal is two million EVs annually around the world by 2026. California used to be ahead of the pack. Now, it’s part of the pack.

That still leaves the big question unanswered: Will people buy EVs? California isn’t leaving that up to chance. The state has included rules to help improve consumer confidence in the new technology. Cars, for instance, will have to maintain roughly 70% to 80% of their original per charge range for 100,000 miles to count as a zero-emission sale.

Affordability also remains an issue. EVs cost more than internal-combustion cars. But CARB believes that EVs and gas-powered cars will cost the same by 2030. Still, full parity shouldn’t be required to spur demand. An EV costs about 40% less to maintain, according to CARB. There are no engines and transmissions to fix. And the electricity powering an EV can cost up to 80% less than the equivalent amount of gasoline—depending on where you’re charging it and what gas prices are going for at that time and place.

Still, it’s hard to overstate the importance of just how big a shift this is for the car business: the biggest change for a multitrillion dollar industry since automobiles disrupted the buggy and buggy-whip business.

One obvious winner from accelerated EV adoption is, of course, Tesla. Shares are up about 15% since Sens. Joe Manchin and Chuck Schumer announced their surprise deal that led to passage of the Inflation Reduction Act, which includes purchase tax credits for EVs. In fact, the EV industry has gotten a lot of good news lately, and GM and Ford shares have done even better. They are up 22% and 26%, respectively, over the same span, while the

S&P 500
has added 6%.

New or old, they’re all winners now.

Write to Al Root at [email protected]