Simulating automakers’ response to zero emissions vehicle regulation

Little research explores automaker response to supply-focused regulation in the long-run, such as zero-emissions vehicle (ZEV) mandates. To that end, we develop and apply the AUtomaker-consumer Model (AUM), which simulates interactions between behaviorally-realistic consumers and a profit maximizing automaker from 2020 to 2030. AUM endogenously represents multi-year foresight for the automaker, including decisions about: (i) increasing ZEV model variety, (ii) intra-firm cross-price subsidies, and (iii) investing in R&D to reduce future ZEV costs. Under both optimistic and pessimistic conditions, automakers are simulated to fully or mostly comply with a 2030 requirement of 30% ZEV sales (rather than pay a penalty). Of the three compliance mechanisms, intra-firm cross-price subsidization dominates. The policy could reduce automaker profit by 7% to 44% in 2030 (relative to the baseline in the same year), mostly due to reduced vehicle sales in total, though overall profits still grow year-on-year from 2020. We identify key uncertainties in these results.