Automakers vs. California: The 2035 EV Mandate Battle and Its Investment Implications

The clash between major automakers and California’s 2035 zero-emission vehicle (ZEV) mandate has reached a critical juncture. Automakers argue the aggressive timeline is economically unviable, while regulators insist it’s necessary to combat climate change. For investors, this battle presents both risks and opportunities across the automotive, energy, and tech sectors. Let’s dissect the stakes.

Automakers’ Case Against the 2035 Mandate

Automakers are lobbying Congress to block California’s plan, citing unattainable sales targets, penalties, and consumer demand gaps. Key arguments include:

• The 2026 35% ZEV Sales Target is Unreachable: California’s ZEV sales rose just 0.3% in 2024 to 25.3% of new car sales, far below the 35% interim goal. Automakers warn they’ll face $20,000 penalties per non-compliant vehicle, forcing them to slash gas/hybrid inventory—a move that could reduce consumer choice and push buyers to states like Nevada or Arizona.
• Credit Shortages: While California’s Air Resources Board (CARB) claims automakers can buy excess ZEV credits from Tesla or Rivian, industry groups argue there aren’t enough credits to offset the gap. Tesla’s sales fell 11% in 2024, further straining the market.

Legislative and Policy Crossroads

The fight isn’t just about sales targets—it’s a political battle over federal authority.

• Congressional Review Act (CRA) Repeal Efforts: Over 130 industry groups, including the American Petroleum Institute and SEMA, are pushing to revoke California’s Clean Air Act waiver via the CRA. However, the Government Accountability Office ruled the waiver isn’t a federal “rule,” making repeal legally uncertain.
• Federal Rollbacks Under Trump: The incoming Trump administration could revoke the waiver outright or cancel the $7,500 federal EV tax credit, undermining affordability.

Note: Tesla’s dominance in California’s EV market makes it uniquely exposed to policy changes.

Market Realities: Why Sales are Stalling

Automakers aren’t the only skeptics. Consumer demand has plateaued due to:
- Affordability Barriers: While EVs under $50,000 (e.g., Ford’s F-150 Lightning) are emerging, upfront costs remain higher than gas cars.
- Infrastructure Gaps: Only 25% of households have dedicated home charging, and hydrogen fuel cell sales dropped 87% in 2024.
- Consumer Awareness: Many buyers don’t grasp long-term savings (e.g., $4,700 in fuel savings over seven years).

Equity and Policy Risks

• Federal Policy Uncertainty: California’s ability to fund equity programs (e.g., incentives for low-income buyers) hinges on federal climate funding. The FBI’s investigation into the state’s Greenhouse Gas Reduction Fund adds further risk.
• Grid Readiness: While EVs will contribute just 4% to peak grid demand by 2030, infrastructure upgrades—like smart charging and time-of-use rates—are still unevenly deployed.

Investment Implications

1. Automakers: A Divided Landscape

• Tesla (TSLA): Its declining sales in California and reliance on credit sales make it vulnerable to policy shifts. A waiver repeal could exacerbate these challenges.
• Traditional Automakers (GM, Ford): These companies may benefit if the mandate is delayed, as they can focus on hybrids or gas vehicles. However, long-term electrification is inevitable—investors should weigh near-term risks against future opportunities.

2. EV Infrastructure and Charging Networks

• ChargePoint (CHPT) and EVgo (EVGO): These companies thrive if the mandate survives, but face headwinds if it’s repealed.
• Utilities (NextEra Energy (NEE), Dominion Energy (D)): Grid upgrades for EVs are a growth area, but progress depends on policy stability.

3. Battery Tech and Recycling

• Redwood Materials (RWMD) and Li-Cycle (LCYL): Recycling firms will profit from battery mandates (e.g., California’s 2026 8-year/100,000-mile warranty rules).

Conclusion: A High-Stakes Gamble for Investors

California’s 2035 mandate is a double-edged sword. If upheld, it could accelerate EV adoption, favoring Tesla, battery innovators, and charging networks. However, the 2026 target is already in jeopardy, and automakers’ penalties or policy rollbacks could disrupt this trajectory.

Investors should monitor:
- CARB’s summer 2025 regulatory updates (potential target adjustments).
- Congressional CRA votes and federal waiver decisions.
- EV sales data: A rebound in 2025 (e.g., from new affordable models) could stabilize the mandate’s future.

The stakes are clear: $7 trillion in global automotive and energy markets hang on this battle. Prudent investors will hedge by diversifying exposure to both EV leaders and traditional automakers while tracking policy developments closely.

Data sources: California Air Resources Board, U.S. Energy Information Administration, automotive industry reports.