Korea Autos: Implications of US CAFE standard changes

On 26 Sep, President Trump announced a major rollback of Corporate Average Fuel Economy (CAFE) standards, cutting the required fleet fuel economy to 34.5mpg by 2031 from the Biden administration's 50.4mpg. We view this as a continuation of the wind-down in policy support for xEVs, and as marginally negative for pure-play xEV OEMs and a modest positive for legacy ICE/HEV-heavy OEMs. For HMC (005380 KS, Buy) and Kia (000270 KS, Buy), we see the change as net positive: it extends the profitable ICE/HEV franchise, while strong HEV demand (which we view as driven more by fundamentals than policy support) continues, and we expect no change to HMG's long-term xEV investment given export exposure to stricter-regulated markets. Tesla and Rivian lose an attractive revenue stream of selling regulatory credits to legacy OEMs. US HEV penetration has risen from 3% in 2020 to 16% YTD Aug 2026.