US Automakers on Edge Over California Emissions Suit

US automakers face growing regulatory and legal uncertainty as California challenges the Trump administration’s effort to revoke the state’s authority to set its own vehicle-emissions standards. The dispute, centered on a decades-old federal waiver, could force automakers to navigate two potentially conflicting regulatory frameworks, affecting both electric-vehicle (EV) and conventional manufacturers. California’s lawsuit follows congressional Republicans’ use of the Congressional Review Act to terminate the waiver that allows the state to enforce emissions rules stricter than federal requirements.

California aims to require automakers to sell 100% EVs or other zero-emission vehicles by 2035, with interim targets beginning in 2026. Eleven other states have adopted California’s zero-emission mandate, together representing 29% of US new-vehicle sales, according to S&P Global Mobility. If California prevails, automakers may need to develop differentiated compliance strategies — or even separate product lineups — to satisfy both state and federal standards, increasing operational complexity and regulatory risk.

California Attorney General Rob Bonta criticized the Trump administration and Congress, stating, “They were told. They knew. They did it anyway,” describing the congressional action as a “dangerous expansion of congressional review powers.” The Environmental Protection Agency (EPA) responded by calling the lawsuit “frivolous,” arguing that California’s policies would have “crippled American industry” and increased consumer costs. Legal experts say the case presents unprecedented regulatory questions. Paul Libus, a vehicle-emissions attorney, noted, “The level of instability and confusion here is unprecedented.”

The legal confrontation follows broader federal policy shifts. Congressional Republicans eliminated the US$7,500 EV tax credit and removed penalties for automakers that fail to meet fuel-efficiency targets. In addition, the Trump administration overturned an Obama-era EPA finding that greenhouse gas emissions endanger public health — a foundational legal basis for vehicle-emissions standards adopted in 2010. California’s lawsuit argues that the administration and Congress improperly classified the waiver as a federal “rule,” enabling its repeal under the Congressional Review Act, despite the Government Accountability Office historically rejecting that classification.

Automakers are proceeding cautiously. California’s Air Resources Board (CARB) has indicated compliance with its updated standards will not be enforced while litigation is pending, although noncompliance could trigger retroactive penalties if the state ultimately prevails. Many manufacturers, including Tesla, continue aligning with California’s framework given the state’s market size and the strategic importance of EV development globally. Mike Murphy, co-founder of EVs for All America, said, “This short-termism is killing us. Automakers are whipsawed by political shifts, making it very hard to plan.”

Analysts suggest automakers must balance near-term federal flexibility with long-term exposure to global regulatory tightening. Murphy added that companies are likely to seek negotiated compromises, as EV production remains critical to competing in major markets such as China and Europe, where emissions standards continue to tighten.

Market Performance and Policy Impacts

Nationally, approximately 22% of light-duty vehicles sold in the United States in 2025 were hybrid, battery electric, or plug-in hybrid vehicles, up from 20% in 2024, according to Omdia. Hybrid electric vehicles  gained market share, while battery electric and plug-in hybrid vehicles declined, particularly after the expiration of federal tax credits.

Battery electric vehicle (BEV) sales peaked at 12% of US light-duty vehicle sales in September 2025 but fell to below 6% in subsequent months, marking the first annual decline in both sales and market share. BEVs remain concentrated in the luxury segment, accounting for 23% of luxury light-duty vehicle sales. In contrast, hybrid vehicles — which do not depend on grid charging infrastructure — continued expanding across broader market segments. The divergence highlights the differing impacts of EV technologies on consumer adoption, energy use and policy incentives.

Several major automakers are scaling back EV investment plans amid regulatory volatility and softer demand. Stellantis reported US$26.5 billion in charges related to its EV strategy adjustment — the largest among recent industry writedowns. Ford and General Motors have also recorded substantial write-downs, reflecting weaker-than-expected consumer demand and the rollback of federal EV subsidies. 

North America experienced a weak start to 2026, with approximately 90,000 EVs sold in January — down 33% year over year and 27% from December. The United States accounted for most of the decline, recording its lowest monthly EV sales since early 2022.

Europe was the exception, selling more than 320,000 EVs in January, a 24% year-over-year increase, although down 33% from December. The region maintained momentum built during rapid growth in 2025, supported by consistent regulatory signals and sustained policy incentives.