Trump is getting ready to sign three resolutions that will overturn California’s strict electric vehicle (EV) and emissions standards. This includes the state’s plan to stop selling new gasoline-only vehicles by 2035, a rule adopted by 11 other states affecting one-third of the U.S. auto market. This decision will revoke an EPA waiver, granted during Biden’s presidency, that allowed California to enforce its 2035 EV requirement. This rule would have required at least 80% of new car sales to be fully electric. Besides this, two more resolutions will cancel EPA support for California’s plans on zero-emissions heavy trucks and stricter nitrogen oxide limits for diesel engines. Automakers like GM and Toyota, along with dealer groups, see this rollback as a win. They believe California’s standards were unrealistic and would hinder EV production. California Governor Gavin Newsom plans to challenge this decision in court, warning that it could lead to an additional $45 billion in healthcare costs for the state. Historically, California has received over 100 Clean Air Act waivers. This action is part of a larger Republican strategy to reduce EV incentives, including a House bill aiming to eliminate federal EV tax credits and implement a $250 annual fee for electric vehicles. These recent announcements show a clear intent to ease regulations on the automotive industry, especially regarding the timeline for electric vehicle adoption. Trump’s actions suggest a withdrawal of federal support for California’s strict emissions rules, marking a move away from a coordinated state-federal strategy for improving air quality. What’s being overturned is a special permission, called a waiver, that allowed California to set stricter rules than the federal government. This included a significant increase in EV sales by 2035, which influenced many other states. By removing this legal support, state policies are likely to become fragmented. Also, withdrawing the EPA’s backing for cleaner heavy trucks and lower nitrogen oxide limits means that regulations for commercial fleets are now facing delays or reversals. These trucks significantly contribute to pollution in crowded areas. Manufacturers have long expressed concerns about costs and infrastructure readiness—issues frequently raised in these discussions. With California’s previous timeline guiding one-third of the U.S. auto market, this rollback creates uncertainty. The industry will likely shift its focus more toward hybrid vehicles or improved combustion engines instead of fully electric options. For those closely monitoring policy changes, the emphasis is now shifting toward short-term profits rather than long-term innovation. The basis for this action is found in the Clean Air Act, which has allowed California to receive over a hundred waivers in the past. This historical context may strengthen California’s legal case, but court timelines often make it hard to predict market impacts. The House’s efforts to eliminate tax incentives for electric vehicles and introduce new costs reflect a broader push to lower demand. This is important when examining market volatility and pricing for EV manufacturers and related sectors. Retail interest may slow if penalties and lost credits decrease vehicle sales over the next two years. From our perspective, the shift in policy has happened quicker than expected. The short-term effects could change demand for raw materials linked to the battery supply chain—lithium, for instance, may see reduced demand expectations, while diesel-related markets could tighten due to the continued use of traditional engines. With the policy environment moving back toward older systems, expectations for compliance costs may level off or even decrease. This will require adjustments in pricing models and profit forecasts for those invested in green technology firms. Whether any states decide to move forward regardless remains uncertain—compliance enforcement largely depends on federal influences. Newsom’s legal response introduces a layer of uncertainty. This matters only if it leads to temporary injunctions or delays. Until we get more clarity from the courts, those exposed to policy changes should prepare for renewed market fluctuations, especially as federal prioritization of electric vehicles may diminish. Shorting strategies for stocks dependent on subsidies might gain traction as discussions head toward formal votes.

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