I think this over-simplifies things. Strict milage standards force a set of compromises on ICE car design that make them both shittier and more expensive[1]. Why would anyone buy such a product when they can get an SUV instead?
[1] Some examples: turbochargers, CVTs, start/stop systems. All of these increase both the cost and complexity of building as well as repairing the car. And with higher complexity comes higher chances for something to fail as well so reliability suffers.