California EV Sales Defy Federal Subsidy Cuts with Record Growth
The California Energy Commission announced on July 20 that zero-emission vehicle (ZEV) sales in California reached 19.1% of new vehicle sales in the second quarter of 2026, a 3.3 percentage point increase from the first quarter and the highest level recorded since the federal EV tax credit expired. A total of 86,857 ZEVs were sold in the quarter, including 75,597 fully battery-electric vehicles, 11,179 plug-in hybrids, and 81 fuel cell electric vehicles. Despite the federal subsidy ending on September 30, 2025, California’s ZEV sales share declined by only 2.5 percentage points compared to the same period last year.
The California Energy Commission attributed the growth in Q2 ZEV sales to two key factors: rising gasoline prices driven by federal policy shifts and California’s state-level incentive programs. On February 28, the Trump administration launched a military conflict with Iran, leading to Iran’s closure of the Strait of Hormuz and a subsequent spike in U.S. gasoline prices. While auto industry analysts caution that short-term gasoline price increases may not directly boost EV sales, the long-term trend could encourage consumers to switch to electric vehicles to reduce fuel costs.
State Incentives Step in as Federal Subsidies End
To mitigate the impact of the federal EV tax credit’s expiration, California introduced several state-level incentive programs. Governor Gavin Newsom announced on July 20 that the state would launch the MyFirstEV instant rebate program in August, administered by the California Air Resources Board. The program offers a $3,500 rebate for first-time buyers of new electric vehicles with a manufacturer’s suggested retail price (MSRP) of up to $50,000 and a $1,750 rebate for used EVs priced up to $25,000. Thirteen automakers are participating in the program, including Ford, General Motors, Honda, Hyundai, Kia, Lucid, Mitsubishi, Nissan, Rivian, Subaru, Tesla, Toyota, and Volvo.
In a statement, Newsom said, “California has built the largest EV market in the country, and we will not let federal policies hinder our progress. The MyFirstEV program will put thousands more Californians behind the wheel of vehicles that are immune to oil price fluctuations while reducing our dependence on foreign energy.” He also criticized the Trump administration’s Iran policy, arguing that it forced American consumers to bear the cost of war at the gas pump, while California offered a more economical alternative.
Tensions Escalate Between California and Federal Government Over Environmental Policies
California’s defiant growth in EV sales underscores the ongoing conflict between the state and the federal government over environmental policies. In July 2025, the U.S. Congress, under Republican control, passed the One Big Beautiful Bill Act (OBBA), which the Trump administration used to eliminate federal EV tax credits. As a result, EV sales across the U.S. declined after September 30, 2025. However, California maintained market momentum through state-level policies, with Q2 ZEV sales reaching a new high since the federal subsidy ended.
In June, the U.S. Environmental Protection Agency (EPA) reclassified four of California’s environmental waivers as “rules” and submitted them to Congress for review, attempting to limit California’s authority to set stricter emissions standards under the Clean Air Act. On June 22, California Attorney General Rob Bonta, Governor Gavin Newsom, and the California Air Resources Board filed a lawsuit against the EPA, accusing the agency of overreaching its authority. Bonta stated, “For over 50 years, regardless of which party controlled the White House, EPA waivers have never been treated as rules subject to Congressional review. The EPA’s action is an unlawful attempt to bypass administrative procedures and allow Congress to interfere with California’s vehicle emissions regulations.”
Since the Clean Air Act was passed in 1970, California has secured over 75 waivers, including the 2008 greenhouse gas standards, 2012 emissions standards, and 2022 amendments to the Small Offroad Engine Rule. Newsom emphasized that California would continue to defend its environmental policy autonomy through legal means and drive the transition to an electric vehicle market. Despite federal policy tightening, California’s Q2 ZEV sales growth was primarily driven by battery-electric vehicles, while plug-in hybrid sales remained stable and fuel cell electric vehicle sales remained minimal.
