MTE Stakeholder Outreach

MTE Stakeholder Outreach

Ford Perspectives: Challenges and Opportunities in the Transport Sector 34th USAEE/IAEE North American Conference October 24, 2016 SLIDE 1 2 SLIDE 2 SCIENCE STABILIZING ATMOSPHERIC CO2 LEVELS 3 SLIDE 3 CO2 MODEL Historical 2000 2050 2100 8 6 = 4 Historical 2 400

350 0 2000 2050 2100 2000 Year + WRE450 Historical Year Atmospheric CO2 concentration 450 WRE450 Global fossil fuel CO2 emissions 2050 2100 Year =

Atmospheric CO2 concentration Carbon Cycle Model Wigley, Richels, Edmonds (WRE) Factories Residential Other Vehicles LDVs Other transport O U T P U T 350 Fuels: Carbon footprint [CO2] (ppm) + 400 Fossil fuel CO2 emissions (GtC/yr) 450 [CO2] (ppm) I N P U T S Vehicles: Miles Traveled, Efficiency

LDV new fleet tank-to-wheels g CO2/km targets Regional Such that global LDV full fleet well-to-wheels emissions are on a path toward 450 ppm CO2 Industry Powerplants Homes Heat and electricity CO2 Emissions By Sector Assume proportional reduction in all sectors SLIDE 4 SUSTAINABILITY BLUEPRINT Near-Term Leverage Existing Technologies at High Volume Mid-Term Substantial Weight Reduction & Expand Electrification

Long-Term High Volume Electrification and Alternative Energies Hybrid Plug-in Hybrid Battery Electric Platform Weight Reductions FC Fuel Cell Fords Sustainability Strategy, Founded On Affordability For Millions Of Customers SLIDE 5 WHAT IS THE ONE NATIONAL PROGRAM? The One-National Program (ONP) is a coordination of Fuel Economy (CAFE) and Greenhouse (GHG) rules by the three agencies for the MY 2012-2025 standards that was supported by many OEMs, including Ford The Environmental Protection Agency (EPA): greenhouse gas emissions (GHG) The National Highway Traffic Safety Administration (NHTSA): fuel economy (a.k.a. CAFE) California Air Resources Board (CARB): greenhouse gas emissions (GHG) Because of the stringency and extended timeframe of the standards, the agencies agreed to a Mid-Term Evaluation (MTE) Mid-Term Evaluation to re-examine the appropriateness of the 2022-2025 regulations Three possibilities for Mid-Term Evaluation: targets appropriate, more stringent or less stringent

MTE Provision Was Critical To Industry Acceptance To The 2017-2025MY Requirements SLIDE 6 ONP DIFFERENCES BETWEEN EPA AND NHTSA Credit Trading Between Fleets Domestic Car Limited Import Car Truck Limited Unlimited Truck EPA and NHTSA: define fleets differently Limited Car generate and trade credits differently credits expire differently according to credit type and fleet Differences Between EPA And NHTSA Programs Add Complexity; It Is Possible To Comply With One And Not The Other SLIDE

77 SLIDE ONP - CURRENT FUEL ECONOMY STANDARD U.S. Fuel Economy Requirements (MPG) Footprint Based Targets C-Max Status 53.9 Car Truck 43.8 37.5 33.8 25.7 2012 Fuel Economy (mpg) 61.7 Focus Status 35 MPG C-Max / Focus Target Mustang Target Car

Truck Mustang Status Expedition Target 48 ft2 2022 2025 Levels the playing field for full-line manufacturers by requiring improvements across all sizes of vehicles Expedition Status Footprint (sq. ft.) One National Program Uses A Footprint Definition To Set Targets And Requires Annual Fuel Economy Improvements For Cars And Trucks SLIDE 8 ONE NATIONAL PROGRAM MID-TERM EVALUATION Economic and Employment Impact Technology Improvements Weight Reduction and Safety Impact

Consumer Acceptance 2022-2025 Model Year Standards Alternative Fuel and Electric Vehicle Infrastructure Status of National Goals Look back at Previous Assumptions An assessment of the appropriateness of the 2022-2025 model year GHG regulations. Was key to the industry agreement to the 2025MY standards. Fuel Prices All The Stakeholders Need To Be Involved To Ensure A Thorough Review, Encompassing The Critical Elements Impacting The Industry And Market 9 SLIDE 9

DRAFT TECHNICAL ASSESSMENT REPORT (TAR) Official notice published July 27, 2016 with 60-day comment period Comments due by September 26, 2016 Over 1,200 pages Over 1,000 references Five computer models +10,000 model runs Model documentation difficult to use 60-day extension requested, but denied Comprehensive Response Was Not Possible In 60-day Comment Period Given The Complexity And Scope Of Report SLIDE 10 FORD / INDUSTRY PERSPECTIVE ON THE TAR TAR deemed optimistic in the assessment of feasibility of meeting 2022-2025 requirements. Specifically: Technology assumptions -- optimistic cost and effectiveness assumptions for future fuel efficient technologies resulting in overly optimistic forecasts for meeting requirements

Modeling -- stack-up of optimistic technology assumptions and modeling deficiencies contributing to optimistic outcomes. Consumer acceptance is a significant challenge and not adequately studied or assessed in the TAR Although the standards are technically feasible Ford will develop the technology needed to build a compliant fleet significantly higher levels of electrification will be needed. Primarily challenge will be selling compliant vehicles customers must be willing and able to absorb the higher cost and any attribute trade-offs associated ultra fuel efficient vehicles. Compliance Cost, Levels Of Strong Electrification, And Role Of Customer Acceptance All Underestimated SLIDE 11 ESTIMATING THE IMPACT OF HIGHER STANDARDS ON SALES In the Draft TAR, the Agencies noted that: it is difficult, if not impossible, to disentangle the effects of the standards on vehicle sales from the effects of macroeconomic or other conditions on sales While it may not be simple, assessing the effects of the standards on sales is essential in order to support a meaningful Midterm Evaluation process. Data driven analyses are necessary to determine the impact of the regulations on vehicle price and consumer acceptance The impact of getting in wrong may result in sales loss, job loss, and missed environmental targets

Ford Requestsed The Agencies To Reassess This Critical Element Of The Mid-term Evaluation SLIDE 12 FUEL ECONOMY IS ONE PRIORITY AMONG MANY New Vehicle Experience Survey (NVES) data demonstrate that new car buyers value many attributes more than fuel economy The NAS study* noted: The most reliable information about consumer preferences comes from surveys of drivers who have made a recent new car purchase. (p. 325) Survey data of potential buyers does not necessarily reflect the tradeoffs between fuel economy and other attributes that customers must balance *National Academy of Sciences, Cost, Effectiveness and Deployment of Fuel Economy Technologies for Light-Duty Vehicles, 2015. Customers Consider Fuel Economy Along With Many Other Vehicle Attributes Related To Performance, Safety and Value SLIDE 13 CONSUMER ACCEPTANCE INCLUDES TECHNOLOGY ACCEPTANCE, NOT ONLY COST Source: MY 2015 Baseline Study, Novation Analytics, September 2016 Performance Concerns Prevented Dual Clutch Transmissions From Taking Hold In The Market As Projected By NHTSA For 2012-2016 MY SLIDE 14 FE VS PERFORMANCE: CUSTOMER ACCEPTANCE REAL-WORLD EXAMPLES 2011-2015 Explorer

Industry Rightsizing Examples Volume Percent 100 Manufacture r Initial Engine Rightsized Engine Audi 1.8L GTDI 2.0L GTDI Miller w/VVL Ford Explorer 2.0L GTDI 2.3L GTDI Ford DOE Research Project 1.8L GTDI 2.3L GTDI

80 60 84% 40 20 1% 0 2.0L GTDI 15% 15% PFI V6 3.5L GTDI Customer Acceptance Of 2.0L EcoBoost In Explorer Was Very Low; Ford Replaced 2.0L With A Larger 2.3L For 16+ MY SLIDE 15 MKZ HYBRID SAME DEALER PRICE, LOWER SALES 2016 MKZ Hybrid Percent Of Sales 70% 30% Gasoline Hybrid Even Price Parity Is Not Sufficient To Compel Most Customers To Choose An Electrified Product. SLIDE 16 FUEL SAVINGS WITH IMPROVEMENTS IN FUEL

Fuel Cost Savings for 5 MPG Improvement % FE Improvement ECONOMY 60% $12,000 $10,000 $9,858 50% Memo: Assumptions 6.5 years of ownership 13,000 miles driven per year Gas price $3.50 / gallon $8,000 40% $6,000 30% $4,929 $4,000 20% $2,958 $1,972 $2,000 $1,408 10% $1,056

$822 $657 $538 $448 $0 0% 1 2 3 4 5 6 7 8 9 10 Fuel Economy Improvement As Fuel Economy Improves, Customer Fuel Savings Decrease, And The Ability To Price For Improved Fuel Economy Diminishes SLIDE 17 EFFECT ON REDUCED MARKET SIZE

Economic models have shown that price increases result in lower levels of new car sales Significant losses in new car sales can result in reduced shifts and employment It is estimated that 6 jobs are lost in related industries for every OEM job lost Data suggests that consumers are holding on to their older cars longer Older vehicle fuel economy is/will be significantly lower than new vehicle fuel economy Retention of older vehicles will have an unintended influence on overall fleet consumption that may place national goals for fuel consumption and greenhouse gas emission reduction at jeopardy Increased Vehicle Prices Reduced New Car Sales Reduced Industry and National Employment And Higher Than Planned Fuel Consumption SLIDE 18 IMPACT OF FUEL ECONOMY COSTS ON VEHICLE SALES AND EMPLOYMENT Net Cost by Cost and Gas Scenario Gas Price per Gallon $2.44 $3.00 $4.64 Cost of Fuel

Economy Savings Net Cost Percent Vehicle Cost Increase Long-Run Demand Impact Total Impact on US Private Employment $2,000 $1,287 $713 2.1% -1.3% -212,240 $4,000 $1,287 $2,713 8.1% -5.0%

-698,260 $6,000 $1,287 $4,713 14.1% -8.6% -1,133,840 $2,000 $1,583 $417 1.2% -0.8% -124,580 $4,000 $1,583 $2,417 7.2% -4.4% -619,500 $6,000

$1,583 $4,417 13.2% -8.1% -1,060,680 $2,000 $2,448 $-448 -1.3% 0.8% 144,020 $4,000 $2,448 $1,552 4.6% -2.8% -375,620 $6,000 $2,448 $3,552

10.6% -6.5% -841,860 Source: Center for Automotive Research, The Potential Effects of the 2017-2025 EPA/NHTSA GHG/Fuel Economy Mandates on the U.S. Economy, September 2016. Significant Impacts On Vehicle Sales Expected When Fuel Economy Costs Outweigh Savings As Valued By Consumers SLIDE 19 KEY MESSAGES CONSUMER ACCEPTANCE/ EMPLOYMENT Consumer acceptance, the most important element of a successful regulatory program, was not sufficiently addresses in the TAR Specifically required to assess these factors in the MTE 34 pages of the 1,217 page document Largely concludes that insufficient resources to properly assess either factor. Delivering advanced fuel efficient technologies affordably and in a manner that meets consumers wants and needs is our greatest challenge The impact of the regulations on sales, and subsequently employment, impacts the assessment of both the success of the program and the impact on the economy. We strongly urge the Agencies to provide robust and thorough analyses of both these factors prior to issuing a proposed determination. Stakeholder Cooperation Will Be Necessary To Ensure That Consumper Acceptance And Impact On The Economy Are Properly Assessed SLIDE 20 MOVING FORWARD Ford remains committed to meeting the requirements and delivering on

our goals for CO2 and fuel consumption reduction We need a stakeholder-wide understanding of the challenges associated with the stringency on the requirements, particularly in a low fuel price market Broader policy issues should be considered on how to ensure national targets are met Moving beyond 2025MY will require substantial effort to ensure market realities are aligned with national targets SLIDE 21 22 SLIDE 22 BACK UP SLIDE 23 CONSUMER ACCEPTANCE OF ELECTRIFICATION IS KEY TO 2025 MY COMPLIANCE Non-BEV/PHEV BEV/PHEV *Comparison includes only those segments where BEV/PHEV segments exist Average Incentive Spending and Federal Tax Credit Benefits For Mainstream

BEV/PHEV and Non-EVs, 2015-2016 Average Incentive Spending (per unit) Average Customer-Facing Transaction Price Average Customer-Facing Transaction Prices for Mainstream BEV/PHEV and Non-EVs, 2015-16 Lower is better Source: J.D. Power & Associates - Power Information Network With Declining Demand For EVs, Customer-Facing Transaction Prices Have Decreased While OEM Incentive Spending Has Increased SLIDE 24 Fuel Prices Affect Consumer Choices Car/Truck mix CAFE (mpg) CO2 (g/mi) 2012 Rule TAR* 67/33% 52/48% 48.7 46.3 163 (54.5 mpg) 175 (50.8 mpg) Source: TAR Table ES-1

*AEO 2015 Reference SLIDE 25 IMPACT OF FUEL ECONOMY COSTS ON VEHICLE SALES AND EMPLOYMENT Net Cost by Cost and Gas Scenario Gas Price per Gallon $2.44 $3.00 $4.64 Cost of Fuel Economy Savings Net Cost Percent Vehicle Cost Increase Long-Run Demand Impact Total Impact on US Private Employment $2,000 $1,287

$713 2.1% -1.3% -212,240 $4,000 $1,287 $2,713 8.1% -5.0% -698,260 $6,000 $1,287 $4,713 14.1% -8.6% -1,133,840 $2,000 $1,583 $417 1.2%

-0.8% -124,580 $4,000 $1,583 $2,417 7.2% -4.4% -619,500 $6,000 $1,583 $4,417 13.2% -8.1% -1,060,680 $2,000 $2,448 $-448 -1.3% 0.8% 144,020

$4,000 $2,448 $1,552 4.6% -2.8% -375,620 $6,000 $2,448 $3,552 10.6% -6.5% -841,860 Source: Center for Automotive Research, The Potential Effects of the 2017-2025 EPA/NHTSA GHG/Fuel Economy Mandates on the U.S. Economy, September 2016. Significant Impacts On Vehicle Sales Expected When Fuel Economy Costs Outweigh Savings As Valued By Consumers SLIDE 26 EPA TAR Cost Changes Table 12.44 Cost per Vehicle Comparison 2012 FRM (2010$) vs Draft TAR (2013$) Cost to bring the baseline fleet to 2016 standards Incremental cost to bring the 2016 fleet to 2021 standards Incremental cost to bring the 2021 fleet to 2025

standards Total cost to bring the baseline Fleet to 2025 standards 2012 Rule, $ 719 Draft TAR, $ 279 766 393 1070 894 2555 1565 Note: Due to large differences in the baseline fleets used (2008 vs. 2014), the 2012 FRM values and the Draft TAR results are not directly comparable SLIDE 27 EFFORTS TO PROMOTE CONSUMER ACCEPTANCE OEMs Advertise Fuel Economy As A Competitive Differentiator, Raising Customer Awareness Of Fuel Efficient Powertrains SLIDE 28

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