Auto Industry Faces Split Rules as Trump, California Battle Over Electric Vehicles

Car manufacturers find themselves caught between opposing regulations as the Trump administration and California fight over electric vehicle requirements in federal court. A Thursday hearing in Oakland will determine whether California can maintain its authority to set stricter emissions standards than federal rules.

Car manufacturers across the nation are facing an unprecedented regulatory split as the Trump administration and California wage a legal battle over electric vehicle standards, with major financial consequences for both traditional automakers and electric vehicle companies like Tesla.

The Golden State is fighting back against a Republican congressional effort to eliminate California’s special authority to create its own vehicle emissions rules. Should California succeed in court, automakers could find themselves navigating two completely different regulatory frameworks: Trump’s policies that discourage electric vehicles versus California’s push toward zero-emission transportation, which a dozen other states have embraced.

The state has mandated that automakers must sell only electric vehicles or other zero-emission cars by 2035, with demanding intermediate goals that were supposed to start this year. Meanwhile, the Trump administration has eliminated federal electric vehicle incentives and support programs, causing a sharp decline in electric car sales across the country.

For many years, California has maintained its own stricter vehicle pollution standards with support from both Republican and Democratic federal administrations. Under recent Democratic leadership, California’s regulations generally matched federal policies that encouraged electric vehicles and improved fuel economy.

However, current California and federal regulations are moving in completely different directions. Trump relaxed emissions rules during his first presidency, but President Joe Biden reversed those changes. Now in his second term, Trump is taking an aggressive stance against federal electric vehicle support.

Republican lawmakers eliminated a $7,500 electric vehicle tax credit last year and removed penalties for automakers who failed to meet fuel efficiency requirements. Trump’s Environmental Protection Agency reversed an Obama-era scientific determination last week that classified greenhouse gas emissions as a public health threat — the legal basis for EPA vehicle pollution regulations established in 2010.

Eliminating California’s special waiver represents a crucial part of Trump’s approach, but the state’s legal challenge claims Congress acted unlawfully. The administration has requested dismissal of the case, with a federal court hearing scheduled for Thursday in Oakland, California.

California contends that Trump’s EPA and Congress used questionable tactics to reclassify California’s waivers as administrative “rules” that can be overturned through the Congressional Review Act. For decades, the EPA has stated in its California decisions that waivers are “not a rule” and the Congressional Review Act “does not apply” — a central argument in California’s lawsuit.

Should the administration prevail, traditional car manufacturers would experience reduced pressure to sell unprofitable electric vehicles in California and 11 additional states, which collectively represent 29% of U.S. new vehicle sales, according to S&P Global Mobility data. Tesla and other electric vehicle manufacturers could lose significant income from selling regulatory credits to other automakers for compliance purposes.

If California wins, traditional automakers might need to create separate vehicle lineups to satisfy two conflicting regulatory systems within the United States. The Alliance for Automotive Innovation, representing the industry, argues this would limit consumer vehicle options and has described California’s rules as an “unaccountable, unachievable regulatory wormhole.”

Mike Murphy, a former Republican strategist who helped establish the advocacy organization EVs for All America, explained that the California-federal conflict demonstrates how automakers are being “whipsawed” by political changes that disrupt their vehicle development and manufacturing strategies. Following Trump’s election, automakers have recorded $55 billion in electric vehicle investment writedowns.

“What I hear from all of them is, ‘This short-termism is killing us,'” Murphy stated. “We have a monkey at the controls in Washington, and it’s very hard to plan.”

White House spokesperson Taylor Rogers dismissed California’s lawsuit as “frivolous” and said Trump has “canceled unpopular green-energy subsidies that wasted Americans’ hard-earned tax dollars.”

California began establishing its own vehicle emissions standards during the 1950s while combating serious air quality issues from automotive and industrial pollution, including dense smog covering Los Angeles.

The Air Quality Act of 1967 allowed California to maintain this authority, granting the EPA power to approve California waivers for pursuing independent regulations. Administrations from both parties have subsequently approved more than 100 such waivers for the state.

During 2019, Trump’s EPA canceled portions of a waiver through formal rulemaking procedures, a lengthier process that California also contested in federal court. The Biden administration restored the waiver in 2022. In Trump’s second term, Republicans attempted a faster approach — eliminating the waiver through the Congressional Review Act.

The Government Accountability Office, an independent agency that historically determines whether agencies comply with the act, concluded last March that waivers are not rules because they represent a “case-specific, individual determination” rather than a “broad application of general principles.”

Congressional Republicans ignored the GAO finding, maintaining that Congress holds authority to define what constitutes a rule. California filed suit the same day Trump signed the legislation in June.

California Attorney General Rob Bonta described the case to Reuters as highlighting the Trump administration’s “contempt for the law” and use of “fringe” legal theories to justify violations.

“They were told. They knew. They did it anyway,” Bonta said during an interview, characterizing the action as a dangerous expansion of congressional review authority.

The EPA responded in a statement that “the only ‘contempt for the law’ here is California’s.”

“We live in a democracy, and Congress writes the laws,” the agency stated, adding that California’s regulations would have “crippled American industry” and increased consumer costs.

Legal experts note that many aspects of the case have never been examined in court, providing limited precedent to predict the court’s decision.

“The level of instability and confusion here is unprecedented,” said Paul Libus, an attorney at Van Ness Feldman LLP who focuses on vehicle emissions policy.

California’s Air Resources Board has informed automakers they can currently choose whether to follow its new standards — but cautioned they might face penalties for non-compliance later if California wins in court. CARB records indicate many automakers are choosing compliance.

California initially adopted these regulations in 2022, when U.S. electric vehicle sales were expected to surge. The state now confronts challenges in achieving its ambitious electric vehicle adoption objectives as consumer interest declines, raising doubts about whether the goals are achievable. Electric vehicles represented 21% of the state’s new car sales last year, slightly lower than the previous year. CARB has announced it will not enforce this year’s electric vehicle sales target due to regulatory uncertainty.

Murphy, the former Republican electric vehicle advocate, predicted automakers will negotiate with California regulators because they cannot risk betting that Trump’s pollution standard rollback will survive beyond his administration — and they must remain competitive globally. Electric vehicles are crucial in markets including China and Europe, where regulators are strengthening vehicle emissions controls.

Automakers recognize, he noted, that “the drunken holiday with the federal regs is probably not going to last.”