By Nicholas Baumstein
Lawsuits filed last month against the Environmental Protection Agency over the repeal of the environmental policy that led to higher emissions standards have injected fresh uncertainty into the U.S. auto industry. A coalition of 24 states and several cities brought the cases, leaving companies without clarity on whether the nation’s electric vehicle trajectory has been permanently altered or merely temporarily delayed.
With the removal of the 2009 Greenhouse Gas Endangerment Finding, which established greenhouse gases as a threat to human health, the Trump administration has removed one of the foundations of the U.S. automobile industry’s transition to electric vehicles. The problem is that the world still wants electric vehicles, and with China rapidly advancing, the long-term global strength of the U.S. auto industry is increasingly uncertain.
The lawsuits come amid a broader rollback of federal policies that had previously encouraged electric vehicle production. The Biden administration had both regulatory and incentive-based rules in place to push the automobile industry toward electrification. In July 2025, Trump signed legislation eliminating penalties for noncompliance with the Corporate Average Fuel Economy standards (CAFE). In September 2025, Trump eliminated the $7,500 consumer tax credit for new electric vehicles.
“The Biden administration provided good incentives, both the stick and the carrot, for the U.S. automobile industry to begin making the transition to electrification,” said Stephen A. Smith, executive director of the Southern Alliance for Clean Energy. “At a critical moment, when the U.S. automobile industry needed to be bridging the valley of death going from internal combustion engine [ICE] vehicles to electric, the Trump administration has completely knocked the props out of both the stick and the carrot.”
This has left manufacturers in an awkward spot. Instability is bad for any industry but is especially challenging in the automobile sector, where systems need to be well established to bring down manufacturing costs. “It is not an insignificant undertaking for a company that produces ICE vehicles to go all electric,” Smith said. “Many of the U.S. manufacturers have one foot in each camp.”
Clean energy advocates say that the immediate potential benefits of an EV transition are clear. Over an EV’s lifetime, owners can save $6,000–$10,000 compared with ICE cars because of lower fuel and maintenance costs. EVs also have higher energy efficiency, quieter operation and smoother acceleration. Although EV production creates more emissions initially, evidence indicates that EVs produce 50% less environmental damage over their lifetimes.
Despite EV potential, some U.S. manufacturers have significantly pivoted away from electric vehicles. Ford, Stellantis and General Motors are all scaling back EV offerings and trimming investments. “It is surprising to see them giving up on this race because it is an important race,” said Mark Jacobsen, professor and director of the UC San Diego Center for Environmental Economics. “It’s the future of the car market.”
EVs represent only about 10 percent of new-car sales in the U.S., compared with roughly 25 percent globally. EVs also remain significantly more expensive in the U.S. than in other countries. In the U.S., the average price of a new EV is roughly $60,000, while in China it is reported at about $25,000. Under the Biden administration, a 100% tariff on EVs from China was imposed to protect domestic EV manufacturing, but the removal of incentives under Trump has slowed electrification to a crawl.
Now it is especially difficult for U.S. manufacturers to produce both ICE and electric vehicles. “Electric vehicles had been beneficial for manufacturers to figure out how to make,” Jacobsen said. “They could collect direct subsidies that could go to the consumer or the firm; they were given advantages when opening new factories for producing EVs, and it helped them comply with greenhouse-gas standards.”
Without continued support for new manufacturing systems that prioritize EV production, many companies see a stronger economic case for expanding less fuel-efficient ICE vehicle production, which continues to align with what U.S. consumers want. “It splits the world’s car markets,” Jacobsen said. “Are they going to be mostly a U.S. car provider or mostly an electric provider?”
Still, some companies appear reluctant to change course quickly. Industry cannot easily adjust to the rapid pace of shifts in public policy, and many manufacturers continue to plan with long-term trends in mind. When asked whether its manufacturing strategy might change, Volvo Trucks emphasized continuity rather than retreat: “Our new highway vehicles are the most efficient we’ve ever produced, and we’re committed to continuing our leadership in this area to benefit our customers’ bottom lines and the environment.”
With a significant share of its commercial truck sales in Europe, where efficiency standards and electrification policies remain strong, Volvo signaled little interest in changing direction. After nearly two decades of regulatory pressure and incentives pushing automakers toward cleaner vehicles, it remains unclear how quickly manufacturers might pivot in response to U.S. policy changes. “A lot of the actions taken to comply with EPA standards and the earlier CAFE standards had long-term goals of introducing more EVs into the market,” said Harrison Fell, an associate professor of environmental and resource economics at North Carolina State University. “I wouldn’t be surprised if companies don’t immediately pivot from that strategy.”
Although the changes might not be as drastic as the administration hopes, the pivot away from EVs is unmistakable, and U.S. manufacturing will certainly respond if the repeal of the Greenhouse Gas Endangerment Finding is upheld by the courts in the coming months.
The regulatory uncertainty and instability leave U.S. car manufacturers at a global disadvantage and reinforce China’s dominance in the EV market. “China is expanding into the international market with electric vehicles that are not only better in their design and performance than U.S. EVs, but they are driving the price points way down,” Smith said. “As they continue to scale their manufacturing and perfect the product, they are going to continue breaking into markets and taking share from U.S. manufacturers.”
Canada has opened its market to certain Chinese EVs, allowing limited annual imports. Chinese EVs are also available in Europe, though tariffs and market rules differ. Bryan Hubbell, a senior fellow at Resources for the Future and former national program director for the EPA’s Office of Research and Development, argues, “If Chinese EVs are sold in the U.S., then U.S. car manufacturers are going to have to respond. To push us we would need competition from Chinese EVs.” However, it is unclear how likely large-scale Chinese entry into the U.S. market is in the near term due to strained economic relations.
Many consequences of the administration’s anti-EV policy remain uncertain. Car manufacturers are not treating the new guidelines as permanent until it is clear whether states can set their own greenhouse-gas rules. “The EPA is saying just because they’re choosing not to regulate, it doesn’t mean the states can regulate in their stead,” Hubbell said. “They want it both ways, and it’s not clear that that’s going to hold up in court.”
If the deregulation holds up in court, expected changes could include shifts in product mix and investment. “If the automakers truly respond, thinking this will be the future law of the land, they could pivot toward more large vehicles, which are more expensive and more profitable,” Fell said.
Pickup trucks and large SUVs are American staples as they account for more than 80% of new car sales. These vehicles are far more profitable for manufacturers, and without stringent fleet-efficiency requirements, manufacturers are incentivized to produce bigger, less fuel-efficient models, which Americans continue to buy.
The Trump administration attributes $1.3 trillion in consumer savings to EPA deregulation, largely tied to sticker-price reductions on new cars. The argument is that removing expensive efficiency technologies and building fewer EVs would reduce manufacturing costs by about $1.3 trillion over some future horizon.Electric and efficient ICE vehicles are more expensive to produce, the argument goes, and removing those requirements will lower costs.
There are several problems with that claim, according to Fell. “They’re saying if it costs $5,000 less to build a vehicle, then they’re going to give you all that $5,000, which is a dubious claim.” If these savings do not go to consumers, they will flow to shareholders and corporate margins.
Additionally, the administration’s calculations often omit what consumers spend on gasoline: typically $1,000–$1,500 per year in savings for more efficient vehicles. That erodes much of the $1.3 trillion in projected consumer savings. The administration has also discounted the future price of gasoline in many of its analyses. With gas prices soaring due to the war in Iran, the consequences of an inefficient vehicle are as clear as ever.
The administration also omits the economic costs of environmental damages. Estimates of the social cost of carbon vary, but recent analyses place it at around $185 per ton. Less efficient vehicles on the road could result in millions of additional tons of carbon dioxide that would not be emitted otherwise.
“Emissions are going to have immediate health effects on communities that are near roadways, which tend to be lower-income and minority communities,” Hubbell said. There are few things worse for an economy than a sick populace. According to the International Institute for Applied Systems Analysis (IIASA), chronic obstructive pulmonary disease (COPD), a lung disease linked to long-term exposure to smoke and pollution, is expected to cost the global economy $4.3 trillion between 2020 and 2050. Yet these public-health costs remain largely excluded from the administration’s economic calculations.
If the courts uphold the repeal of the Endangerment Finding, the U.S. auto industry will face a choice that is as much strategic as it is financial: lean into short-term margins by producing larger, less-efficient vehicles, or continue investing in electrification to remain competitive in a world rapidly moving toward low-emission transport.
