Insights 
VT 
Trump is preparing to sign three resolutions that reverse California’s advanced electric vehicle (EV) and emissions standards. These include the state’s plan to ban new gasoline-only vehicle sales by 2035, a policy also adopted by 11 other states, impacting one-third of the U.S. auto market.
The decision will remove an EPA waiver, issued during Biden’s term, allowing California to enforce its 2035 EV requirement. This mandate would have required at least 80% of new car sales to be fully electric. Additionally, two more resolutions will void EPA endorsements of California’s plans for zero-emissions heavy trucks and tougher nitrogen oxide limits for diesel engines.
Automaker Reactions
Automakers such as GM and Toyota, along with auto dealer groups, view this rollback as a victory. They argued California’s standards were impractical and would detract from EV production efforts.
California Governor Gavin Newsom plans to challenge the move legally, asserting it could add $45 billion in healthcare costs for the state. California has been granted over 100 Clean Air Act waivers historically. This action fits into a larger Republican strategy to reduce EV incentives, including a House bill to eliminate federal EV tax credits and introduce a $250 annual EV fee.
The recent announcements reflect a clear move to dilute regulatory pressure on the automotive sector, especially regarding electric transition timelines. With Trump aiming to unwind federal support for California’s strict emissions mandates, the measures indicate a retreat from the coordinated state-federal approach to air quality improvements.
What’s being overturned is a special permission—known as a waiver—that allowed California to impose rules tougher than the federal baseline. This included requiring a sharp rise in EV sales by 2035, which had effectively set the pace for much of the nation via its influence on other states. By pulling back this legal backing, a unified direction among states is likely to fragment.
Removing the EPA’s support for cleaner heavy trucks and lower nitrogen oxide limits means that the regulatory path for commercial fleets now faces delays, if not outright reversals. These trucks contribute heavily to pollution levels in densely populated regions. The pushback from manufacturers previously pointed to practical concerns over cost and infrastructure readiness—claims we’ve heard consistently in these debates.
Market Impact
With one-third of the U.S. auto market previously following California’s timeline, this reversal inserts hesitation. The industry, in reprioritising production strategies, will likely shift more of its focus toward hybrid vehicles or improved combustion engine models rather than full electric solutions. For those of us following policy trajectories closely, the emphasis now tips further toward short-term margins rather than long-horizon innovation builds.
The legal basis for this intervention lies in the Clean Air Act, which has previously permitted over a hundred such waivers to California. That historical precedent may give more weight to the state’s arguments in court, but litigation timelines rarely offer clarity for market timing.
House efforts to remove tax incentives for electric cars and add new costs for owning such vehicles reflect a broader attempt to dampen demand. This matters when considering option volatilities and forward spreads on EV manufacturers and adjacent sectors. Retail exposure may also decelerate if penalties and lost credits reduce vehicle sales over the next two years.
From our standpoint, the policy tone has shifted faster than expected. The near-term impact could alter demand expectations in raw materials commonly tied to the battery supply chain—lithium, for example, may see softening implied demand across Q3 hedges, while diesel-related spreads could tighten based on more robust legacy engine fleet utilisation.
Given the policy environment is now leaning back toward legacy systems, expectations for regulatory compliance costs may flatten or trend downward. This needs recalibrating in existing pricing models and margin guidance for those holding long positions in green-leverage firms. Whether any states push ahead regardless is not immediately material—compliance enforcement is federal-level in impact.
The legal response from Newsom introduces a front of uncertainty. That matters only if it results in preliminary injunctions or delays. Until clarity emerges from the courts, policy-sensitive exposure should factor in renewed headline volatility with a bias toward a rollback in electric vehicle prioritisation at the federal level. Shorting strategies in subsidy-dependent equities may find more legs as committee discussions move into formal voting status.
