• The Biden administration on Wednesday approved California's ban on gas cars by 2035.
• Trump has promised to revoke California's authority to set strict limits on tailpipe pollution.
• It's a high-stakes fight over the future of electric vehicles and tackling the climate crisis.

The stage is set for another battle between President-elect Donald Trump and California over the state's aggressive push for electric vehicles that could affect the rest of the country.

The Environmental Protection Agency on Wednesday said California can go ahead with its ban on the sale of new gas-powered cars by 2035. The approval is an attempt to safeguard the state's strict limits on tailpipe pollution from Trump's promise to revoke them and roll back other federal incentives for electric vehicles.

The stakes are high for automakers because what happens in California can dictate companies' broader EV strategies and the pace of the country's shift away from fossil fuels. The state accounts for some 11% of the US auto market and is also the top EV market in the country. In the first half of 2024, EVs and hybrids accounted for nearly 40% of sales in California.

On top of that, 11 other states and Washington D.C. have adopted rules similar to California's as they seek to reduce the country's largest source of greenhouse gas emissions. The rules require automakers to sell a growing number of zero-emissions vehicles over time. In 2026, at least 35% of new cars, pickup trucks, and SUVs must be electric in California and five other states, while other states' targets kick in in 2027.

Automakers largely support easing emissions regulations

While Trump will face legal challenges in trying to roll back California's rules, he could find some automakers on his side.

The Alliance for Automotive Innovation, a lobbying group representing most new vehicle manufacturers in the US, has already asked Trump to ease emissions regulations but keep federal tax incentives that keep EVs affordable.

John Bozzella, president of the alliance, said Wednesday that the waiver was an expected development and the Trump administration will likely revoke it next year.

"We've said the country should have a single, national standard to reduce carbon in transportation," Bozzella said in a statement. "But the question about the general authority of California to establish a vehicle emissions program – and for other states to follow that program – is ultimately something for policymakers and the courts to sort out."

Trump, some Republican lawmakers, and groups linked to fossil fuel interests have repeatedly attacked EVs on the campaign trail, falsely claiming that Americans would be forced to abandon their gas-powered vehicles.

Those attacks come as the EV market deals with a marked slowdown in demand, forcing many companies to reasses their long-term plans for battery-powered cars and, in some cases, add more hybrids to the mix. A pullback in production has made it harder for many companies to meet long-term emissions requirements. Automakers including General Motors, Ford, and Stellantis have laid off thousands of workers.

Auto market analysts, environmental lawyers, and policy experts told Business Insider that they expect the shift to zero-emissions vehicles to continue regardless of who's in the White House — albeit at a slower pace if Trump and Congress overturn tax incentives to buy EVs and investments in charging infrastructure.

"Whatever the Trump administration does this time, automakers' concerns about stability will come up again because all of these manufacturers have said zero-emissions vehicles are the future," Sean Donahue, an attorney who's represented the Environmental Defense Fund in litigation over California's emissions waiver, said.

He added that there's pressure from regulators in other countries to address the climate crisis. US automakers also don't want to fall far behind competitors in countries like China, where affordable EVs have taken off.

California looks to 'Trump-proof' its regulations

Even if Trump does revoke California's emissions waiver, Gov. Gavin Newsom is already trying to "Trump-proof" the state, including its EV and climate policies.

Newsom said he would restore rebates for consumers who buy EVs if Trump ends the federal $7,500 tax credits enacted in the Inflation Reduction Act. This month, the state's energy commission approved a $1.4 billion investment in EV charging and hydrogen fuel stations over the next four years. The commission said the funding could help build nearly 17,000 new public chargers for passenger vehicles — on top of the 152,000 available now.

Newsom also convened a special legislative session to bolster California's defenses against Trump's attacks. Lawmakers could pass $25 million in new funding for the California Department of Justice so the state can file litigation against the Trump administration. That will likely happen if Trump revokes the state's tailpipe pollution waiver.

Karoline Leavitt, a spokeswoman for the Trump transition team, said that Trump plans to stop what he says are attacks on gas-powered cars.

"When he takes office, President Trump will support the auto industry, allowing space for both gas-powered cars AND electric vehicles," she said in an email.

Ann Carlson, a professor of environmental law at the University of California at Los Angeles, told Business Insider that she expects the Trump administration to face an uphill legal battle.

She said the EPA has approved California's authority to set strict rules for tailpipe pollution for decades because the state's air quality is so bad. Otherwise, areas including Los Angeles and the Central Valley wouldn't comply with federal air pollution laws and could be penalized.

"The sanction is the withholding of federal highway funds," Carlson — who recently served as chief counsel to the National Highway Traffic Safety Administration — said. "It's quite draconian. So California has a pretty good argument that it needs these waivers to meet federal law."

The Supreme Court last week agreed to consider a lawsuit that oil and gas producers filed against the EPA over its waivers allowing California to set stricter limits on tailpipe pollution than the federal government. However, SCOTUS will only decide whether fossil fuel makers have standing to sue over what they say is bureaucratic overreach and won't consider whether California's waiver is legal.

James Di Filippo, a principal policy analyst at the research firm Atlas Public Policy, said automakers will likely continue to walk back their EV investments while the legal battles play out. Companies could seek another compromise with California to restore more certainty as they plan new vehicle models for years to come.

"If they're uncertain about a regulatory outcome, they'll default to a less intense push," he said.

• Auto execs see an opportunity to roll back state EV mandates under President-elect Donald Trump.
• Nissan and Toyota say state rules requiring a rapid uptick in EV sales are unrealistic.
• Automakers are facing slowing EV demand, job cuts, and competition from China.

Some auto executives see an opportunity with the incoming Trump administration to roll back state rules requiring a rapid uptick in electric vehicle sales.

Executives at Nissan, Toyota, and the auto industry's largest US lobbying group say it will be impossible for the industry to meet aggressive timelines to phase out gas-powered cars and trucks by 2035 in a dozen states including California and New York, as well as Washington, DC. In six states, a target kicks in in 2026, when at least 35% of new car sales must be EVs.

"It will take a miracle to be achieved," Jérémie Papin, senior vice president of Nissan, said this week during an event in Washington, DC. "That's where others need to do a reality check on what's possible."

He noted that EVs accounted for about 9% of new car sales nationwide in the third quarter — a record, but still far short of what regulators are requiring by 2026.

Automakers, facing lower-than-expected demand for EVs this year, are pulling back on production, and some companies are cutting jobs to save costs. At the same time, they have poured billions of dollars into EVs and executives say they are committed to the transition, especially to stay competitive with China as it churns out more affordable EVs. That balancing act has put the industry in a delicate position with Trump who railed against EVs on the campaign trail, vowing to kill tax credits and other incentives encouraging Americans to buy them.

Now the industry is strategizing how to influence Trump, including on EV sales requirements they view as too ambitious. Trump will likely take their side.

At a campaign event in Michigan in October, he said no state would be allowed to ban gas-powered cars. Trump during his first term tried to revoke California's authority to set stricter limits on tailpipe pollution than the federal government. California is granted that authority under the Clean Air Act but must get waivers from the Environmental Protection Agency. Biden restored the states' authority — a move currently being litigated and could reach the Supreme Court.

To avoid uncertainty, a group of automakers, including BMW, Ford, Honda, and Volkswagen, struck an agreement with California in 2020 to follow the state's rules through 2026.

The rules are stricter than federal regulations issued earlier this year by the Biden administration's EPA. Those federal rules aren't an "EV mandate," as Trump falsely said on the campaign trail. Rather, automakers can choose how to curb greenhouse gas emissions from cars, trucks, SUVs, and vans sold between 2027 and 2032. The agency estimated the rules could boost EVs to up to 56% of new car sales, with the rest from a mix of hybrids and gas vehicles.

'Not ready to go electric'

Dealers, which were the first to sound the alarm on changes in the EV market last year, have argued that state and federal emissions requirements are out of step with demand. As companies push to meet these requirements, dealers complain they are stuck with unpopular EVs on their lots.

"A majority of customers are simply not ready to go electric right now," Dave Kelleher, a Chrysler-Dodge-Jeep-Ram dealer in Pennsylvania, told BI. "Maybe with a new administration, some of those fines will become a thing of the past, or even mitigated."

Karoline Leavitt, spokeswoman for Trump's transition effort, said Trump will stop attacks on gas-powered cars.

"When he takes office, President Trump will support the auto industry, allowing space for both gas-powered cars AND electric vehicles," she said in an email.

John Bozella, president of the Alliance for Automotive Innovation, which represents companies producing nearly all the new vehicles sold in the US, sent a letter to Trump in November asking that he ease emissions regulations but keep EV tax incentives fueling domestic investment in the supply chain.

An analysis commissioned by the Natural Resources Defense Council found that companies have announced $312 billion in planned investments in EVs and battery production since Biden took office in 2021, fueled partly by tax incentives in the Inflation Reduction Act.

One automaker, Toyota, supports doing away with EV mandates and subsidies altogether. In a recent op-ed in the Wall Street Journal, Toyota Chief Operating Officer Jack Hollins wrote that state mandates distort the market because companies funnel zero-emissions vehicles to those locations and ultimately limit choices for customers.

General Motors initially sided with Trump in his crusade against California's EV rules, but dropped its support of the legal battle after Biden won the 2020 election. It's unclear whether the automaker would once again side with Trump if he tries to roll back emissions requirements. Paul Jacobson, General Motors' executive vice president and chief financial officer, told reporters that ideally there'd be more consistency between federal and state rules. But the automaker will respect regulators' authority, he said.

"There's a lot at stake here," Jacobson said during the event in Washington. "That's why we talk about being nimble across the board, because sometimes it's the marketplace and sometimes it might be the regulatory environment. But we can't make excuses for poor performance. It's not just Washington. It's China, it's Europe. There's a lot of things going on all over the world and we have to be able to respond to that."