Core Viewpoint - The article discusses the European Union's plan to mandate that car rental companies and large fleets only purchase electric vehicles starting in 2030, which has faced strong criticism from German Chancellor Friedrich Merz for being unrealistic and ignoring current market needs [4][10][15]. Group 1: EU Plan Overview - The EU is drafting a proposal to require car rental companies and large fleets to exclusively purchase electric vehicles by 2030, effectively aiming for a 100% electric rental car market [10][12]. - This initiative is seen as a "green accelerator" to promote electric vehicle adoption across Europe [6][11]. - The plan is still in the internal drafting phase and has not yet been formally proposed or approved [13][14]. Group 2: German Response - Chancellor Merz criticized the proposal for overlooking current market demands and infrastructure capabilities, advocating for a more flexible approach that includes various technologies beyond just electric vehicles [15][19]. - He emphasized the need for a diverse technological landscape, including synthetic fuels and hydrogen energy, to support the automotive industry's future [20][19]. - Merz's comments reflect a broader concern that a forced transition to electric vehicles could harm the competitiveness of the European automotive industry and lead to job risks [20][19]. Group 3: Industry Reactions - The rental car industry has expressed concerns that the focus should be on improving charging infrastructure rather than solely on vehicle type [25][24]. - Leaseurope's Richard Knubben stated that advancing the ban on combustion vehicles from 2035 to 2030 does not align with economic realities and should be based on factual assessments rather than environmental beliefs [26]. - Some industry supporters argue that targeting corporate fleets, which account for 60% of new car sales in the EU, could accelerate the transition to electric vehicles and enhance the second-hand market [29][31]. Group 4: Market Implications - If the 2030 mandate is implemented, the average two-year turnover of rental vehicles would lead to a fully electric rental market by 2032, three years earlier than the previously planned ban on combustion vehicles [32]. - The controversy highlights a deeper conflict in Europe's electrification process, balancing aggressive green goals with practical market conditions [33][34].

Investment Rating - The report suggests a preference for suppliers over OEMs due to current market conditions and valuation metrics [1][3]. Core Insights - The automotive industry is facing significant challenges from tariffs, with an estimated industry cost of approximately $59 billion, which is about 8.2% of the US Average Transaction Price (ATP) [3]. - Automakers are poorly positioned to absorb tariff costs, leading to greater operating deleverage compared to suppliers [3]. - Recent legislation threatens around 52% of Tesla's earnings before interest and taxes (EBIT), which could lead to substantial negative estimate revisions for the company [1][3]. - The rise of Chinese automakers and the ongoing price wars in the electric vehicle (EV) market are contributing to a shift in preference towards suppliers [1][3]. Summary by Sections Macro Update - The report highlights that the automotive sector is experiencing a base case scenario of a 4.1% increase in new vehicle prices and a 4.1% decrease in the US light vehicle seasonally adjusted annual rate (SAAR) [3]. - Suppliers are better positioned than OEMs, benefiting from an executive order that alleviates some tariff impacts [3]. Legislative Impact - The elimination of the $7,500 federal consumer tax credit (CTC) by the end of 2025 could represent about 19% of Tesla's 2024 EBIT, while the outlawing of the California Air Resources Board (CARB) Zero Emission Vehicle (ZEV) credit trading scheme could account for approximately 33% of Tesla's 2024 EBIT [1][3]. Competitive Landscape - The report notes that the proliferation of battery electric vehicle (BEV) models and advancements in automation are making Tesla's market position less unique, as competitors like Xiaomi and BYD continue to gain market share [1][3].