California is the world’s fifth-largest economy. It’s the cradle of Big Tech, the birthplace of Tesla and a global trendsetter in environmental and public health policy. For decades, it has championed ambitious clean air rules, projecting its influence not only to other U.S. states but also to the rest of the world. But Congress just took a sledgehammer to that legacy this week, revoking a decades-old waiver that let California write its own emissions rules which allowed it to create healthier, more breathable cities.
California’s fight is the lead story for the Friday edition of Critical Materials, your daily newsletter covering the world of electric cars and technology. Also on our radar today: EVs may now become more expensive, as House Republicans pass a bill to end a comprehensive set of incentives that was designed to boost local manufacturing of clean energy in the U.S. Plus, Tesla battery supplier Panasonic’s second U.S. plant is set to open this year after myriad challenges.
30%: California Will Sue The Feds Over Emissions Rules
California’s decades-long crusade against air pollution and its ambitious plan to fully electrify its roads took a gut punch this week. In a 51-44 vote, the Republican-led Senate moved to overturn the state’s landmark plan to end sales of new gas-powered cars by 2035.
The plan, backed by a waiver from the Environmental Protection Agency (EPA) under the Clean Air Act of the 1970s, allowed California to impose stricter emissions rules than the federal standard. That waiver helped the California Air Resources Board (CARB) to pass the Advanced Clean Cars II regulation—a roadmap requiring all new car sales to be zero-emissions by 2035. Eleven other states follow California’s emissions rules. Now that vision seems to be in question.
But ending California’s 2035 gas car ban using the Congressional Review Act seems to be set on murky legal foundations. So California Attorney General Rob Bonta said the state is fighting back, marking its 23rd lawsuit against the Trump administration this year.
Here’s more from Politico:
“The federal government’s overreach is illogical,” Bonta said in a press conference in Sacramento. “It’s politically motivated, and it comes at the expense of Californians’ lives and livelihoods.”
“I think the fact that the Senate parliamentarian, the Government Accountability Office, have all rejected this approach, this reliance on the Congressional Review Act, that the Congressional Review Act has never been used for this purpose ever in 30 years, and that Clean Air Act waivers have been given over the 55-year duration of the statute by both Republican and Democratic administrations, and never been challenged in this way, probably tells you all you need to know,” he said on Thursday.
California leads the country in EV adoption with over 2 million EVs sold so far. Battery-powered models accounted for about 25% of the state’s overall vehicle sales in the final quarter of last year. But lately, EV sales in California have been growing more slowly as the market has moved past its early adopter phase.
Mass market buyers tend to have more concerns over costs, range and charging infrastructure, so adoption has been more cautious rather than explosive. And Tesla no longer enjoys the same popularity in the state like it used to a few years ago, as rivals have stepped up and CEO Elon Musk’s politics are pushing some buyers away.
With national EV adoption already facing headwinds, the rollback of California’s emissions waiver threatens to stall the country’s broader climate goals. The last stronghold for aggressive zero-emission policy has been kneecapped—at least for now. Automakers are celebrating this move as it will allow them to sell more high-profit-margin gas-powered vehicles in the state for a longer period of time.
Now it’s up to the courts to decide whether California can retain its right to set its own emissions rules.
60%: EV Sales Could Slow Down In The U.S.
Photo by: InsideEVs
EV sales in the U.S. reached record highs last year and the first quarter of this year, thanks to an influx of new and affordable models, generous federal incentives and steadily improving charging infrastructure.
But House Republicans dealt an untimely blow to the EV industry this week by passing a bill to end the Inflation Reduction Act’s tax credits for consumers and for local EV factories. If the bill passes in the Senate, it would effectively mean that the U.S. is surrendering to China’s technological lead in EVs, setting the country back after years of progress.
Here’s more from The New York Times:
“It’s a big win for China and bad for American manufacturing,” said Mike Murphy, a veteran Republican political operative who is chief executive of the EV Politics Project, a group that seeks to end what it calls “the needless partisan divide over E.V.s.”
“In the long term we’ll get there,” said Jessica Caldwell, head of insights at Edmunds.com. “It feels like the next decade is going to be bumpy.”
The EV market has to grow organically some day. Before it can, it needs a bit of help getting off the ground. That’s the phase we’re in now—as charging infrastructure is still being built out, companies are still refining their EV designs and battery costs are coming down.
But ending the $7,500 consumer tax credit for EVs will mean automakers might have to roll back their lease and financing offers and also make outright purchasing more expensive. And ending the tax credits for EV and battery plants would drill a large hole in automakers’ bottom line.
Opponents of the tax credits argue that the EV industry is being unfairly subsidized. Let’s not forget that the gas car industry has been unfairly subsidized for decades—that too at a scale that dwarfs any EV investments the U.S. has ever made.
One conservative estimate by the Environmental and Energy Study Institute says the U.S. government spends about $20 billion per year in direct and indirect subsidies to the fossil fuel industry.
That includes deductions on drilling and reduced taxes on income from coal, oil and natural gas businesses. The fossil fuel industry also enjoys deductions on royalties paid abroad and lower corporate tax rates on domestic production. Plus, the U.S. uses a lot of its international political capital to make sure oil prices stay low.
90%: Panasonic’s Second U.S. EV Battery Plant May Open Soon
Japanese battery giant Panasonic’s second EV battery plant in the U.S. could be operational in July after facing several delays and mounting pressure from Tesla, its main customer.
Panasonic is building a second U.S. factory in De Soto, Kansas as it looks to expand its local battery manufacturing capacity amid President Trump’s 25% tariffs on foreign auto parts. It already has a huge facility in Sparks, Nevada, within the Tesla Gigafactory complex.
The new 300-acre complex in Kansas comes at an uncertain time, as EV subsidies are on track to get rolled back on the federal level, which could threaten demand and make EVs more expensive. Plus, Panasonic says this plant was the most difficult ever to set-up.
Here’s more from Nikkei:
One equipment supplier involved in the Kansas plant told Nikkei Asia that construction was “the toughest we’ve ever had in terms of meeting the schedule,” citing, among other things, America’s more “relaxed” working culture, a natural disaster and uncertainty over U.S. tariffs.
The source said some of the local construction workers were less reliable than those in Japan, less willing to work overtime and more likely to “complain that they can’t ensure safety due to the slightest irregularity.”
When operational, it will supply EV batteries to Tesla and other automakers. Even then, it won’t be 100% localized and may continue relying on imports from Japan and China. Unless the U.S. strikes a trade deal with those countries anytime soon, things may continue to be uncertain for Panasonic.
100%: Fossil Fuels Get Subsidies. Shouldn’t EVs Get Them Too?
The federal gas car tax has been stagnant since 28 years, not raised since 1993 and standing at a little over 18 cents per gallon. But the EV industry is now facing multiple headwinds: a new proposed tax of $250, rollback of tax credits and an end to California’s gas car ban.
Do you think the federal government should continue subsidizing EV purchases and manufacturing to compete with China, or should the industry be left to stand on its own? Should the government try to incentivize EVs for public health reasons, or trust that the market will one day sort it out?
Have a tip? Contact the author: suvrat.kothari@insideevs.com
