Automakers could see a financial tailwind worth billions of dollars after the United States lowered fuel economy standards and stopped imposing fines for violating those rules, according to an auto analyst.
In late September, the National Highway Traffic Safety Administration sharply reduced fuel economy goals for light-duty vehicles to an average of 34.9 miles per gallon by 2031. Under previous rules that the Biden administration finalized in 2024, the U.S. fleet was then expected to average 50.4 miles per gallon in the same period.
This follows Congress’ vote last year to eliminate fines for automakers for failing to comply with regulations. Several years ago, General engines And Stellantis has paid hundreds of millions of dollars in civil penalties for failing to meet U.S. fuel economy requirements for previous model years, Reuters reported.
“We’ve already seen (the costs of fines and credits) decline even this year and serve as a tailwind for additional profits,” said Itay Michaeli, an analyst at TD Cowen. “And that could be a few hundred million dollars.”
The new rules also eliminate the sale and trading of credits used by automakers to offset the production of fuel-guzzling vehicles. NHTSA has in the past allowed automakers at risk of exceeding their fuel economy average to purchase credits from other makers of low- or zero-emission vehicles.
Historically, state and federal credits have been sources of revenue for electric vehicle producers such as Tesla And Rivien.
These changes relieve pressure on automakers who tend to produce less efficient vehicles, such as SUVs, pickup trucks or high-performance sports cars. But they also allow automakers to shift their portfolios and investments from products designed for compliance to more profitable products, Michaeli said.
The potential strategy shift has three elements, he said. First, automakers can sell more internal combustion vehicles and fewer of what are often called “compliance cars,” which are fuel-efficient vehicles or electric vehicles that sell more slowly or are less profitable than automakers make in order to stay on the right side of the fuel economy or emissions rules.
Over the past year, several automakers have written down billions in investments related to electric vehicles, demonstrating how difficult these vehicles are to make a profit in the United States.
Ford announced a $19.5 billion special charge in December as part of a restructuring of its business and a withdrawal of investments in electric vehicles, while GM recorded a $7.1 billion impact in the fourth quarter related to its own withdrawal and restructuring in China. At Porsche, EV-related writedowns caused the auto sector’s operating profit to fall 98% in 2025, and Honda’s operating profit contributed to the company’s first annual loss in about 70 years.
A second possible change is what Michaeli calls “ICE optimization”: Relaxed regulations allow automakers to sell more high-margin vehicles, often with larger engines.
Detroit automakers, as well as some foreign manufacturers, have already reintroduced V8 engines. Stellantis’ Ram brand has brought back gas-guzzling engines for its full-size pickup truck lineup. GM, meanwhile, announced in September that it would bring a new generation of small-block V8 engines to its Silverado and Sierra full-size pickup trucks. And Ford has increased the availability of the V8 on its F-150 pickup trucks, the best-selling vehicle in the United States.
“So to work through the funnel,” Michaeli said, automakers might think, “I don’t have to pay compliance fees, I don’t have to buy credits. That’s great. Now maybe I can sell more pickup trucks, and within those pickup trucks I could sell more V-8s and different versions of those pickup trucks.”
Michaeli said the third element is that automakers are also redirecting research and development investments away from projects focused on meeting fuel efficiency regulations and toward those that increase profits or support additional investments in powertrain development or other technologies.
After the elimination of federal tax credits for electric vehicles and a decline in the market in that segment, automakers are left with big questions about how to invest, said John Murphy, an auto analyst.
“Balance sheets and balance sheet cash may have to be much higher than previously thought because there is extreme uncertainty about where powertrains will ultimately go,” Murphy said. “Remember, the powertrain is the most expensive part of a vehicle.”
Despite regulatory changes, hybrids have seen a surge in the U.S. market in recent months, and some companies have been better positioned than others to handle the increase. Murphy expects this to continue.
“Our forecast is that hybrids, absent a change in the regulatory regime, will grow from 14% of the market last year to around 34% of the market by the end of the decade,” he said. “So it’s a big change that’s happening quickly. Some months ago we were at about 19% (hybrid).”
That said, Michaeli argued that electric vehicles should continue to grow. Electric vehicles have an exceptionally high loyalty rate, he said.
Electric vehicle owners are more likely to replace their vehicle with another electric vehicle than hybrid or gasoline vehicle owners are to keep the same type of powertrain, Michaeli said. Electric vehicles also remain favored platforms for other innovative technologies, such as autonomous driving features.
But the main reason Michaeli sees the potential for electric vehicles is the large number of two-car households in the United States – the highest proportion of such households in the world. Michaeli said he believes these households are most likely to opt for an electric vehicle and an ICE vehicle. There are about 300 million vehicles on U.S. roads today, he said. Only about 7.5 million of them are electric vehicles, according to the Alliance for Automotive Innovation, a trade group of automakers.
“Many new generation electric vehicles are still coming,” he said. “Imagine what happens when these electric vehicles come into the market and ramp up. That’s why it’s very difficult to be structurally negative on U.S. demand for electric vehicles, because when it’s running, it can run very, very sharply.”
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