Automakers Face Mandate Risks as California EV Sales Stall

California's EV sales have plateaued, raising questions about whether automakers can meet the state's ambitious zero-emission vehicle (ZEV) mandates.

New sales figures from the California New Car Dealers Association (CNCDA) show that automakers—aside from Tesla—struggle to reach the state's 35% ZEV sales target for the 2026 model year.

Demand challenges highlighted by industry leaders

Brian Maas, President of the CNCDA, expresses concern over the stagnant sales.

"The data don't lie," Brian says. "The demand doesn't match what the mandate requires. It's just that simple."

In 2024, 387,368 zero-emission vehicles were registered in California—representing about 25% of all new car sales. However, that marked only a 1% increase over the previous year, a sharp contrast to the 46% growth in prior years. Total car sales in California remained flat at 2 million vehicles.

Severe penalties loom for automakers

The implications of missing the 35% mandate are serious. Automakers face penalties of US$20,000 per noncompliant vehicle sold or must limit their inventory of gasoline and diesel vehicles to meet the target.

Alternatively, automakers can buy emissions credits from manufacturers with a surplus, most notably Rivian and Tesla.

"Automakers won't pay the fines," Brian predicts. "They'll opt for inventory control, possibly limiting the sale of gas- and diesel-powered pickups."

He warned that dealers in neighbouring states like Arizona and Nevada could become flooded with internal combustion vehicles, making it difficult for Californians to find their preferred cars and likely driving up prices.

Push for policy flexibility

Brian and the CNCDA have begun advocating for a pause in the state's ZEV mandate. Governor Gavin Newsom's office did not comment directly but referred questions to state agencies.

The California Energy Commission (CEC) has reaffirmed its commitment to transitioning the market to ZEVs and expressed confidence in meeting the mandate.

"California is proud to lead the country in zero-emission vehicle sales as the global market continues to innovate and surge," the CEC said. "The rapid pace of EV adoption worldwide has become a building block of a new industrial policy shaping California's future economy."

The California Air Resources Board (CARB), responsible for the state's Advanced Clean Cars II program, stated, "It's premature to say the target will not be met. Yes, some manufacturers may need to buy credits, but that's always been an option to provide flexibility."

Manufacturer flexibility through credit systems

Under the Advanced Clean Cars II programme, manufacturers have options to meet their ZEV targets. The rules allow for multi-year averaging, meaning that a manufacturer's 2026 ZEV sales must represent 35% of total sales averaged across model years 2022 through 2024.

Credit systems offer another avenue for compliance. Automakers can earn, bank and trade credits based on vehicle type and electric range. Companies such as Tesla or Rivian can sell surplus credits to other manufacturers that exceed their ZEV targets. Excess credits can be banked for future use or traded between manufacturers.

These mechanisms relieve automakers by offering flexibility in meeting mandates more cost-effectively.

Automakers pull back on EV ambitions

Despite public declarations of commitment to the EV market, major automakers have begun cancelling or delaying some EV projects and scaling back plans to build battery factories in the US. Uncertainty around consumer demand and stringent mandates has made automakers hesitant to commit significant resources to new ventures.

California's ZEV mandate was first announced by Governor Newsom in 2020 and formalised in 2022. With federal approval from the Biden administration, the state has the authority to set its emissions standards under the Clean Air Act. However, the mandate only requires manufacturers to sell EVs—it does not obligate consumers to buy them.

As the automotive industry grapples with mounting challenges—including the rapid transition to EVs, intense competition from Chinese automakers and evolving consumer preferences—meeting California's ZEV targets remains uncertain. Industry leaders like Ford's Jim Farley have warned against additional disruptions at this critical moment.

The coming months will be crucial as policymakers, automakers and consumers navigate California's evolving ZEV landscape. Whether through policy adjustments, consumer incentives, or market innovation, the path forward remains a work in progress.

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