American automakers say they’re worried that the Trump administration has unwittingly placed a ticking time bomb inside its sweeping push to roll back fuel efficiency standards, and could force Detroit to dramatically increase the number of electric vehicles it makes under a future administration.
At issue is a little-noticed change made by the Energy Department this February to a formula used to determine compliance with what is known as corporate average fuel economy (CAFE) standards.
The effect on automakers — including the Big Three of Ford, GM and Stellantis — would not be immediate, most observers acknowledge, since congressional Republicans and the administration have gutted penalties for automakers who don’t comply with fuel efficiency standards.
But those automakers and their allies are very much eyeing a future Washington controlled by Democrats, who could pass laws to force compliance — and perhaps implement a stronger underlying standard.
An auto industry official granted anonymity to discuss the change said altering the formula could paradoxically force automakers to increase their EV production by fourfold. This person added that credit for EVs was an important piece of how companies show compliance with fuel economy standards: reduce the amount of credit given to EVs, and a company that would otherwise be in the black on complying with the rules could find itself in the red very quickly.
“Like a teeter-totter, it can dip you from balance to nonbalance,” said the auto official.
The Big Three automakers and the Alliance for Automotive Innovation — which represents the industry — declined to comment on how companies might choose to comply with the fuel economy standards given the new EV values. But in comments filed with DOE in 2023, ahead of a Biden-era reconsideration of the factor that cut EV compliance credit to one-third of its previous value, companies from Porsche to GM pleaded for longer lead times or for DOE to keep EV values high.
The push by automakers to change the EV formula comes amid widespread uncertainty in the EV market. In the nearly 16 months since the Trump administration has been in power, it has rolled back numerous Biden-era regulations and laws meant to juice EV adoption. Automakers have responded by drastically scaling back their EV ambitions. But the war in Iran is now scrambling that picture, as drivers now face, on average, $4.50 a gallon gas.
The formula change throws another monkey wrench into all that uncertainty.
“Automakers have several paths for meeting regulations, and details define what path makes sense from one automaker to another,” noted Stephanie Brinley, an auto analyst at S&P Global Mobility. “Massive changes to the yardstick every few years complicate decision making.”
Big credit for few EVs
The DOE formula at the core of the Detroit heartburn is known as the petroleum-equivalency factor, or PEF. It helps determine how strong or weak the Transportation Department’s fuel economy standards for cars and trucks can be — and what automakers will have to do to comply with them.
Specifically, the PEF assigns electric vehicles a compliance value for fuel economy standards that, in turn, helps determine how much carmakers must do to ensure their fleets comply.
For 20 years prior to the Biden administration, the PEF was kept very high, so much so that even if automakers produced relatively few EVs, they would still get an outsize credit that could offset an otherwise inefficient fleet.
For those two decades, the PEF assumed EVs average 330-mpg equivalent — a performance more than 10 times better than that of most internal combustion engine vehicles.
Biden administration officials and green groups saw the formula as a free pass for automakers and set about changing it, ratcheting the PEF down by roughly a third. Under the Biden formula, by model year 2030 the auto industry would have been able to claim only between 110- and 120-mpg equivalent per battery-powered vehicle.
“There would still be a substantial advantage of producing an electric vehicle, but not nearly as large as previously,” said David Greene, who advised the National Highway Traffic Safety Administration early in former President Joe Biden’s term.
The Biden DOE’s PEF revision would have made it harder for automakers to comply with the tougher fuel economy rules that NHTSA finalized in 2024. But carmakers didn’t challenge the change.
A court win, a DOE change
Instead — in a twist that showed the complicated politics the Trump DOE must now navigate — conservative states with ethanol and petroleum interests took the Biden administration to court, demanding a redo of the regulatory values they said were a giveaway to EV interests.
Thirteen Republican-led Midwestern and Western states and one anti-regulatory trade group sued the Biden administration, arguing that the new PEF made it too easy for car companies to shirk their responsibility for improving fuel economy because they got too much credit for each battery-powered vehicle.
To establish that they had standing to sue, Iowa and the other states — all of which have historically opposed climate regulations — told the 8th U.S. Circuit Court of Appeals that DOE’s revised factor would burden them by driving increased fossil fuels demand and climate pollution.
“The Supreme Court has held that States with coastlines — like some petitioners in this case — have …standing to challenge policies that increase greenhouse gas emissions,” they reminded the court, pointing to the landmark 2007 Supreme Court decision that directed EPA to consider regulating climate emissions under the Clean Air Act.
Texas, Mississippi and Florida were all parties to the suit with coastlines — and a historic aversion to federal climate standards.
In a September 2025 decision, the court sided with the petitioners in determining that DOE had cut procedural corners in finalizing the PEF. The judges also found that it should have ended the use of the so-called fuel content factor, not phased it out slowly, because it had no basis in statute.
The court kicked the rule back to DOE — which was now helmed by Trump Energy Secretary Chris Wright.
The American Free Enterprise Chamber of Commerce, which had joined in the lawsuit on the side of the petitioners, said the court’s decision repudiated “the Biden administration’s illegal gravy train for EVs.”
“This is a victory for the rule of law and for hard-working Americans and small businesses who will no longer be forced to pay thousands extra for conventional cars and trucks to subsidize EVs for rich, coastal elites,” said Gentry Collins, the group’s CEO.
But the Trump DOE responded by repealing the Biden PEF and reinstating the 2000 PEF — tripling the CAFE compliance value of battery-powered vehicles back to 330-mpg equivalent.
Then in February, DOE issued an interim final rule that automakers said they weren’t expecting. It jettisoned the fuel content metric the 8th Circuit had found arbitrary, but omitted other considerations that had kept the Biden-era value for EVs relatively high.
So after briefly offering automakers the same, very high EV compliance premiums they had relied on for more than 20 years, DOE abruptly cut that credit by 85 percent — without giving notice or an opportunity to comment. EVs were now assumed to get about 50-mpg equivalent, roughly on par with many plug-in hybrids models.
In the February rule, DOE promised to revisit factors like grid efficiency in a subsequent rulemaking, which could impact the way EVs are valued. The agency did not respond to questions for this story.
Automakers plead to scrap rule
Car companies say DOE’s action will mean their EV fleets will do less of the heavy lifting on CAFE compliance, because they can’t balance fuel economy averages of their gasoline-powered passenger vehicles. That’s particularly true, they say, if NHTSA finalizes its proposal to reclassify most SUVs as passenger vehicles instead of light trucks. Treating SUVs as passenger vehicles would not only require them to meet a relatively more stringent standard, but would average their fuel economy with a manufacturer’s sedan models to meet that fuel economy standard.
The Alliance for Automotive Innovation said in comments to DOE that it should scrap the interim final rule — which it said had “legal deficiencies” — and issue a new factor “that is consistent with those requirements and congressional intent to reflect the relatively high efficiency of electric vehicles.”
General Motors said in comments to NHTSA filed before DOE unveiled its revision that “degrading the value of EVs toward CAFE compliance” through a lower PEF “undermines industry investment decisions made in 2019-2024, which have relied upon the prevailing higher PEF value remaining in place for 8-10 years.”
For their part, environmentalists say that any change to EV values or vehicle classifications are rendered meaningless by the prevailing weakness of the Trump administration’s fuel economy proposal, which is expected to be finalized late this year. Republicans also zeroed out any monetary penalties in their megalaw last summer.
“There is in effect no rule,” said Dave Cooke, a senior scientist in the Union of Concerned Scientists’ transportation program, referring to the CAFE standards. “Congress already destroyed this program by removing the fines. And the program was already sort of becoming ineffective, because EVs — however you credit them, but especially under the old PEF — were already dominating compliance.”
‘An existential threat’
But some automakers said that by undervaluing EVs, an EV-skeptical Trump administration might force them to make more of the electric models it dislikes.
The auto industry official who spoke on the condition of anonymity to share internal analysis said the DOE’s new, much lower PEF could reduce a manufacturer’s fleetwide fuel economy average by a few miles per gallon — a compliance deficit that carmakers would be forced to fill by quadrupling EV production, he said.
The alternative would normally be to pay hefty fees, the official said — though he acknowledged that the One Big Beautiful Bill Act’s provision reducing penalties for noncompliance to zero made that “a more 2029-oriented issue.”
“It is plausible that if Democrats were to control the House and the Senate and the presidency — and therefore they controlled the reconciliation process of the budget — it is possible they would act to turn these back on,” he said. “Congress has that prerogative, just like they turned them off last year.”
Leslie Bellas, vice president of regulatory affairs at American Fuel and Petrochemical Manufacturers, which filed a brief in support of challenge to the Biden-era PEF, said car manufacturers have gotten used to being able to comply with CAFE standards by averaging in a small fleet of EVs, and the PEF revision would change that.
“They could make EVs or not, depending on what the consumer wanted, without fear of noncompliance with CAFE,” she said. “So, for them, when all of a sudden this gets taken away — the PEF is no longer inflated to meet CAFE standards — they are going to have to make a certain type of vehicle to meet those numbers, because they don’t have that flexibility anymore.
“So I think for them, it is an existential threat, because they have these long-term strategies of what they’re going to do with their fleet,” she said. “So I think this really shook the ground.”
