Senate Republicans Target EV Incentives and Fuel Economy Penalties in New Tax Bill

U.S. Senate Republicans have proposed eliminating fines for failing to meet Corporate Average Fuel Economy (CAFE) standards in a sweeping new tax bill, aiming to ease regulatory pressure on automakers and boost gas-powered vehicle production.

The proposal could significantly impact companies like Stellantis (NYSE:STLA), which paid $190.7 million in fuel economy penalties for 2019–2020, following nearly $400 million in earlier fines. General Motors (NYSE:GM) previously paid $128.2 million for 2016–2017 non-compliance.

The bill also undercuts Tesla’s (NASDAQ:TSLA) emissions credit business. By removing compliance penalties, rival automakers would no longer need to purchase credits from Tesla, potentially costing the EV leader around $200 million in revenue.

Meanwhile, House Republicans have introduced a separate plan to repeal Biden-era emissions regulations and proposed increasing EV ownership costs. Their bill would eliminate the $7,500 EV tax credit, impose a $250 annual EV fee, and phase out battery production incentives by 2028.

Both chambers are aligned in efforts to block California’s ban on new gasoline-only car sales by 2035—a policy already adopted by 11 states representing roughly one-third of the U.S. auto market. That bill is pending President Donald Trump’s approval.

The Transportation Department is also expected to rule that including EVs in Biden's fuel economy rules exceeded legal authority. Previously, the National Highway Traffic Safety Administration had proposed increasing average fuel economy to 50.4 miles per gallon by 2031, up from 39.1 mpg. The industry could face $1.83 billion in cumulative penalties under the current rules.

The new proposals mark a significant shift in U.S. automotive and environmental policy, favoring internal combustion vehicles while rolling back EV incentives and emission standards.