The U.S. Department of Transportation has finalized a new set of corporate average fuel economy standards that sharply relaxes the regulatory pressure on gasoline-powered passenger cars and light trucks, a move that is expected to reduce the compliance value of electric vehicles and further cool the pace of electric vehicle adoption in the United States. Under the new rule, the average fuel-economy standard for model-year 2031 passenger cars and light trucks is set at 34.9 miles per gallon, equivalent to about 6.74 liters per 100 kilometers. The target compares with 50.4 miles per gallon, or about 4.7 liters per 100 kilometers, under the final rule issued in 2024, a reduction of more than 30 percent in the stringency of the standard.
The decision marks another major swing in U.S. fuel-economy policy, which has alternated between tightening and loosening across recent presidential administrations. It also arrives at a delicate moment for the U.S. electric vehicle market, where demand growth has slowed, federal purchase incentives have expired, and automakers are reassessing the pace of electric vehicle investment. The new rule does not ban electric vehicles or force automakers to stop producing them, but it removes several regulatory mechanisms that had made electric vehicles valuable for compliance and had encouraged manufacturers to lift electric vehicle sales volumes.
1. A Sharp Downward Reset for Fuel-Economy Targets
The U.S. new-vehicle fuel-economy standard dates to the energy crisis of the 1970s, when the policy was designed to reduce dependence on imported oil and curb motor-vehicle emissions. Over the decades, the standard has been revised repeatedly, with periods of aggressive tightening followed by significant relaxation. The latest change continues that pattern and represents one of the largest downward revisions in recent years.
During the Obama administration, the standard was pushed to a historic high, with a target of 54.5 miles per gallon for model-year 2025 passenger cars and light trucks, equivalent to about 4.32 liters per 100 kilometers. That policy path was interrupted during Trump’s earlier term. In 2019, the Trump administration revised the rule and relaxed the model-year 2025 target to 37 miles per gallon, or about 6.36 liters per 100 kilometers. After Biden took office in 2021, the tightening process resumed, and a final rule issued in 2024 established a 50.4 miles-per-gallon target for model-year 2031 vehicles. The Biden administration also introduced a range of measures to support the electric vehicle industry.
In 2025, Trump returned to the White House, and U.S. new-vehicle energy regulation shifted again. The administration issued a proposal to lower the fuel-economy targets substantially. On September 28, the U.S. Department of Transportation finalized the new rule, setting the average fuel-economy standard for model-year 2031 passenger cars and light trucks at 34.9 miles per gallon. Compared with the 50.4 miles-per-gallon target in the 2024 rule, the new standard is significantly looser, and expected fuel consumption will rise accordingly.
| Policy stage | Model year | Average fuel-economy target | Metric equivalent | Status |
|---|---|---|---|---|
| Obama-era standard | 2025 | 54.5 miles per gallon | About 4.32 liters per 100 kilometers | Historic high |
| 2019 Trump revision | 2025 | 37 miles per gallon | About 6.36 liters per 100 kilometers | Loosened |
| 2024 Biden final rule | 2031 | 50.4 miles per gallon | About 4.7 liters per 100 kilometers | Replaced by the new rule |
| New final rule | 2031 | 34.9 miles per gallon | About 6.74 liters per 100 kilometers | Current standard |
The new standard is not limited to a single numerical target. It also changes how compliance is measured and how automakers can meet the rules. The National Highway Traffic Safety Administration, or NHTSA, has based the new passenger-car and light-truck fuel-economy standards on gasoline and diesel vehicles, while including non-plug-in hybrid vehicles in the calculation. In setting the standard, NHTSA no longer counts the equivalent fuel economy of battery-electric vehicles, and the electric-only driving portion of plug-in hybrid vehicles is also excluded from the calculation. The agency has also stopped using compliance credits and the dual-cycle fuel-economy test correction factors previously provided for air conditioning and off-cycle fuel-saving technologies.
The practical effect is that electric vehicles can no longer serve as a scoring tool to raise an automaker’s average fuel economy. To comply with the new standard, automakers must rely on the performance of their gasoline vehicles and hybrid vehicles themselves. As a result, the value of electric vehicles for compliance purposes shrinks substantially, and the regulatory incentive to produce more electric vehicles is weakened. The change is especially important because the previous rules had allowed automakers to use electric vehicle sales and credits to offset higher fuel consumption in other parts of their fleets.
2. Electric Vehicle Compliance Value Shrinks Under the New Architecture
The revised treatment of electric vehicles is one of the most consequential elements of the new rule. Under the prior framework, electric vehicles played a central role in compliance planning. A battery-electric vehicle could generate a strong fuel-economy benefit, and automakers could use those gains to balance sales of larger, less efficient vehicles. The new rule removes that mechanism and places the compliance burden back on gasoline vehicles and hybrids.
NHTSA is also making two structural changes to the compliance system. From model-year 2028, the agency will eliminate the credit-trading mechanism among automakers. NHTSA has said the existing trading system allowed some manufacturers to rely on purchased credits rather than improving the fuel economy of their own vehicles. By ending cross-company credit trading, the agency intends to force each automaker to meet the standard through its own product portfolio. The change will directly cut off a revenue channel for companies such as Tesla, which had benefited from selling credits, while reducing the compliance costs that traditional automakers had paid to buy credits. It will also further weaken the role of the CAFE system in pulling the market toward electric vehicles.
From model-year 2030, NHTSA will also implement a new vehicle classification system for passenger cars and light trucks based on vehicle attributes and performance. The U.S. Department of Transportation has said the previous classificationæ ‡å‡† contained obvious loopholes. For years, many urban-family SUVs and crossover models were classified as light trucks because of features such as ground clearance and four-wheel drive, allowing them to qualify for a lower fuel-economy threshold. In some cases, automakers added features that consumers did not necessarily need in order to satisfy the classification conditions. The new approach is intended to return to the legislative intent: vehicles designed mainly to carry passengers should be classified as passenger cars, while only vehicles genuinely used for off-road driving or cargo hauling should retain light-truck status.
For the electric vehicle market, the combined effect is clear. The new rule lowers the stringency of the average fuel-economy target, removes electric vehicle equivalent fuel economy from the calculation, ends credit trading among automakers, and tightens the classification of light trucks. Each change reduces the regulatory advantage that electric vehicles once enjoyed. The electric vehicle remains a product choice, but it is less useful as a compliance instrument. That shift is likely to influence product planning, investment priorities, and the speed at which automakers introduce new electric vehicle models in the United States.
3. Industry Relief and Environmental Concerns Coexist
Supporters of the new rule describe it as a correction to a regulatory path that had moved ahead of market reality. Trump said on social media that he had approved the new fuel-economy standard and ended what he called the Biden administration’s “electric vehicle mandate.” The U.S. Department of Transportation estimates that the new standard will significantly reduce vehicle manufacturing costs, with an average reduction of $930 per vehicle. At the same time, the department acknowledges that the rule will increase fuel consumption and carbon dioxide emissions. By 2050, the rule is expected to lead to 100 billion additional gallons of fuel consumption, $185 billion in additional fuel spending, and about 5 percent more carbon dioxide emissions.
NHTSA estimates that, compared with the 2024 rule, the new standard will reduce the U.S. auto industry’s cumulative compliance technology costs by $60.6 billion by 2031. The agency’s estimates show that General Motors’ compliance technology costs could fall by $20.4 billion, Stellantis by $6.6 billion, Ford by $5.8 billion, Hyundai by $5.3 billion, Toyota by $4.5 billion, and Honda by $4.1 billion. Under the stricter standards, automakers would have needed to increase technology investment to lower fuel consumption or produce more electric vehicles to meet the targets. With the standard substantially loosened, companies can reduce those investments, and the market space for gasoline vehicles is expected to expand.
| Automaker | Estimated reduction in compliance technology costs |
|---|---|
| General Motors | $20.4 billion |
| Stellantis | $6.6 billion |
| Ford | $5.8 billion |
| Hyundai | $5.3 billion |
| Toyota | $4.5 billion |
| Honda | $4.1 billion |
| Industry total | $60.6 billion |
NHTSA estimates that if the cost savings are passed through to consumers, the average cost of a model-year 2031 new vehicle could fall by $1,289. However, automakers may not necessarily translate compliance cost savings into lower sticker prices. General Motors said during its second-quarter 2026 earnings call that its average U.S. new-vehicle transaction price was $52,400 and that its sales incentives were lower than those of most competitors, reflecting strong pricing discipline. Ford also raised its full-year earnings before interest and taxes outlook to $10 billion to $11 billion during the same reporting period, citing strong product pricing as one reason. Bloomberg reported that General Motors management continues to emphasize pricing room for an upcoming redesigned pickup.
Industry reaction has been mixed. The Alliance for Automotive Innovation, or AAI, which represents large automakers including General Motors, Toyota, Volkswagen, and Hyundai, supports the new rule. AAI Chief Executive Officer John Bozzella said the Biden-era standards effectively required automakers to switch to electric vehicles, but that approach was disconnected from market reality and customer demand. He described the NHTSA rule as an appropriate course correction. The industry group’s position reflects the view that lower compliance costs and a more gradual electric vehicle transition are better aligned with current consumer demand and product economics.
By contrast, U.S. environmental organizations argue that lower fuel-efficiency requirements will increase vehicle owners’ long-term fuel spending. They note that the total cost impact on consumers depends on whether automakers pass compliance cost reductions through to vehicle prices, as well as on the fuel consumption of new vehicles over their useful lives and on future fuel prices. The debate therefore extends beyond the sticker price of a new vehicle to include the operating costs that consumers will face over many years.
The New York Times analyzed that the new rule will encourage automakers to produce more high-fuel-consumption large pickups and SUVs. That may generate strong profits in the short term, but over the longer term it could affect the competitiveness of U.S. automakers. With conflict in the Middle East continuing and international crude oil prices elevated, global electric vehicle sales remain strong. If the United States slows its electric vehicle transition at this moment, U.S. automakers could fall behind foreign competitors in electric vehicle technology, cost reduction, and market position.
4. Policy and Market Cooling Reinforce Each Other
The new fuel-economy rule lands as the U.S. electric vehicle market enters a period of deep adjustment. The combination of looser energy-consumption regulation and softer electric vehicle demand is expected to change the industry landscape that had been shaped by aggressive pro-electric vehicle policies. The pace of the U.S. auto industry’s electric vehicle transition may slow further.
The U.S. electric vehicle market experienced several years of rapid growth before reaching an inflection point in 2025, when growth slowed and market share slipped. One reason was the expiration of the federal electric vehicle tax credit of up to $7,500 on September 30, 2025. In the fourth quarter of 2025, U.S. battery-electric vehicle sales fell to 234,000 units, down 46 percent from the previous quarter and down 36 percent from a year earlier. Kelley Blue Book estimated that the U.S. battery-electric vehicle market share was 7.8 percent in 2025, slightly lower than 8.1 percent in 2024.
| Indicator | Reported figure |
|---|---|
| Federal electric vehicle tax credit | Up to $7,500, expired September 30, 2025 |
| U.S. battery-electric vehicle sales in the fourth quarter of 2025 | 234,000 units |
| Quarter-over-quarter change | Down 46 percent |
| Year-over-year change | Down 36 percent |
| U.S. battery-electric vehicle market share in 2025 | 7.8 percent |
| U.S. battery-electric vehicle market share in 2024 | 8.1 percent |
The new fuel-economy rule further weakens the core policy driver of the electric vehicle transition. Previously, higher fuel-economy standards were a central lever for pushing automakers to increase electric vehicle production and sales. To meet average energy-consumption targets, automakers had to continuously raise the share of electric vehicles in their sales mix and phase out high-fuel-consumption gasoline vehicles. With the new standard substantially loosened, compliance pressure is significantly reduced. Automakers no longer need to rush to invest huge sums in expanding electric vehicle production capacity or iterating electric vehicle technology, and they no longer need to abandon large-displacement gasoline models that remain popular in the market.
For automakers, gasoline vehicles and hybrid vehicles, which offer a better cost-performance balance and stronger market acceptance, are likely to become the core focus of product planning over the next several years. The pace of electric vehicle research and development, production launches, and model updates is expected to slow across the board. Honda, for example, said in late August that it plans to establish a new vehicle production base in North America in response to growing U.S. demand for hybrids, with the United States a leading candidate for the site. The statement underscores how hybrid vehicles are absorbing part of the demand that might otherwise have supported electric vehicle growth.
Toyota and Hyundai’s hybrid models are also selling strongly in the United States. In the second quarter of 2026, Toyota’s U.S. sales reached 674,000 units, up 1.1 percent year on year. Electrified vehicle sales totaled 383,000 units, up 19.5 percent year on year. Toyota’s electrified vehicle category includes hybrids, plug-in hybrids, battery-electric vehicles, and fuel-cell vehicles, but the main sales driver is hybrids. Hyundai is also benefiting from the market shift. Its U.S. hybrid vehicle sales rose 71 percent in the second quarter and 67 percent in the first half, making hybrids a pillar of its U.S. sales.
The market signals and the policy signals now point in the same direction. Looser fuel-economy rules reduce the cost of compliance for gasoline vehicles and hybrids, while softer electric vehicle demand reduces the urgency of electric vehicle expansion. The result is a more gradual electric vehicle transition in the United States, with automakers allocating more capital and product attention to hybrids and efficient gasoline vehicles. The electric vehicle market will continue to grow in some segments, but the policy-driven acceleration that characterized the previous period is weakening.
5. What to Watch in the Next Compliance Cycle
The new rule does not end the debate over U.S. fuel-economy policy or the electric vehicle transition. Several issues will shape how the market responds.
- Automakers will need to recalibrate product plans for model years 2028, 2030, and 2031, when credit trading ends, vehicle classification changes, and the new average fuel-economy target takes effect. These changes will affect the mix of passenger cars, light trucks, hybrids, and electric vehicles in showrooms.
- The value of electric vehicle compliance credits will decline, and the revenue that some electric vehicle manufacturers have received from credit sales will shrink. Traditional automakers will face lower compliance costs, but they will also face less regulatory pressure to buy credits or increase electric vehicle sales.
- Consumer costs will depend on pricing decisions. If automakers pass compliance savings through to buyers, new-vehicle prices could fall. If they retain the savings, the effect on consumers will be limited to changes in fuel consumption and fuel prices over the life of the vehicle.
- The new light-truck classification system could reshape the design and marketing of SUVs and crossovers. Automakers may need to adjust vehicle attributes to ensure that models are classified appropriately, and some vehicles that had benefited from light-truck treatment may face different compliance treatment.
- Global competition will remain a critical factor. While the U.S. rule loosens fuel-economy requirements, electric vehicle markets in other regions continue to develop. U.S. automakers’ long-term competitiveness will depend on their ability to balance profitable gasoline and hybrid products with continued electric vehicle technology development.
- The environmental impact of higher fuel consumption will remain contested. The U.S. Department of Transportation has estimated additional fuel use and carbon dioxide emissions by 2050, while environmental groups argue that lower fuel-efficiency requirements will raise long-term consumer fuel spending.
The finalized rule therefore represents more than a numerical adjustment to the U.S. fuel-economy standard. It changes the compliance architecture that had supported electric vehicle sales, reduces the regulatory pull toward electric vehicles, and reinforces a market shift toward hybrids and gasoline vehicles. For automakers, the immediate effect is lower compliance cost and greater product flexibility. For the electric vehicle market, the effect is a slower policy-driven acceleration and a more uncertain investment environment. The coming compliance cycles will reveal how quickly the U.S. auto industry adjusts its product mix, how consumers respond to changes in vehicle pricing and fuel costs, and whether the electric vehicle transition can regain momentum without the regulatory support that had previously helped drive it.