Why it applies to other states, and what it means for the auto industry

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Why it applies to other states, and what it means for the auto industry

What’s at issue?

The California Air Resources Board passed a regulation in 2022 called Advanced Clean Cars II, or ACC II. It mandates that 35 percent of vehicles an automaker produces and delivers for *****, which can include vehicles wholesaled to dealers and not yet sold to retail customers, in the state for the 2026 model year must be zero-emission (electric vehicles, hydrogen fuel cell vehicles or plug-ins, though PHEVs only receive partial credit). Automakers face fines of up to $20,000 on each noncompliant vehicle, or they can purchase limited available credits from other automakers. Five other states — Oregon, Washington, New York, Massachusetts and Vermont — also follow the requirement starting with the 2026 model year, measuring the percentage of vehicles wholesaled in those individual states.

In the 2027 model year, the regulation goes up to 43 percent, and five additional states and Washington, D.C., join at the higher percentage: Colorado, Delaware, New Jersey, New Mexico and Rhode Island. The requirement then rises 8 percentage points per model year until it requires all vehicles sold by an automaker in each state be ZEV in the 2035 model year and beyond. In April, Maryland’s governor delayed enforcement of the rules for that state until the 2029 model year through executive order.

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Who’s involved?

The mandate is a significant challenge for legacy automakers and their franchised dealers — especially those that have not been as aggressive as others in adding electric vehicles because of slower consumer adoption rates. Dealers within the ZEV states worry that automakers will limit their ability to sell vehicles that aren’t EVs to keep their potential penalties down. Dealers in non-ZEV states are likely to see their supplies of EVs and PHEVs greatly reduced, though they should see greater supplies of combustion-powered and hybrid vehicles than they might otherwise.

What’s at stake?

It depends on whom you ask. Dealers in ZEV states worry that the mandates will mean large numbers of lost sales because consumer EV adoption rates greatly lag the mandated wholesale percentages, and automakers may be reluctant to allocate sufficient numbers of the combustion-powered vehicles their customers may want to avoid stiff penalties. They fear consumers will instead buy from dealers in non-ZEV states where those vehicles will be more plentiful. Automakers worry the penalties for noncompliance in each ZEV state are so stiff they would lose money on nearly every combustion-powered vehicle they sold. Meanwhile, those concerned about the environment and air quality fear that industry backsliding on the mandate will further stymie broader adoption of cleaner vehicles and dissuade automakers from improving battery technology, range and other aspects.

What’s happening now?

Automakers, state dealer associations, individual dealers and industry groups are intensely lobbying the Trump administration, Congress and the ZEV states to eliminate or at least ease the mandate or lower the costs of noncompliance. Meanwhile, automakers are preparing their allocation strategies to maximize EV sales in the ZEV states starting this fall if their lobbying efforts fail. Environmental groups are lobbying to keep the mandates in place.

Why it matters?

Industry news has been dominated by the more immediate threat of tariffs, but the ACC II mandate, which begins grabbing hold in the fall in a number of states, is just as grave and perhaps more difficult to overcome. If consumer choice of new vehicles is limited by regulation only in certain states, will consumers in those states take their business elsewhere? How will dealers in ZEV states react if their new-vehicle sales drop dramatically? Will lobbying efforts bear fruit? Will the whole issue wind up in court?

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