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| The Tesla Model Y SUV and Model 3 electric sedan. |
In a move that reshapes the economics of electric vehicle production, the Trump administration has rescinded a long-standing regulatory provision that allowed automakers to dramatically inflate the fuel economy ratings of their electric vehicles. The change, effective immediately, eliminates the so-called "fuel content factor" (FCF) that had been embedded within the Corporate Average Fuel Economy (CAFE) standards since the dawn of the modern EV era.
The decision, confirmed by Department of Energy documents and reported by Reuters, removes a multiplier that effectively treated electric vehicles as if they achieved nearly 900 miles per gallon in CAFE calculations—far above their real-world efficiency of around 130 MPGe for vehicles like the Tesla Model Y.
How the Multiplier Worked
The now-rescinded rule employed a petroleum equivalency factor that multiplied actual EV efficiency by roughly 6.667, stemming from a formula that dated back to 1981. The rationale was straightforward: Congress wanted to incentivize automakers to produce more electric vehicles at a time when the technology was nascent and battery costs were prohibitive.
Under the original framework, each electric vehicle counted toward a manufacturer's fleet average at a rate far exceeding its technical specifications. For instance, an EV that consumed 30 MPGe worth of petroleum-equivalent energy would register as contributing 200 mpg toward the manufacturer's CAFE compliance. This artificial inflation created surplus credits that automakers could bank or sell to competitors struggling to meet fuel economy targets.
According to the Department of Energy's final rule document, the Biden administration had scheduled this provision to expire in 2030, with a gradual phase-out beginning with model year 2027 vehicles. The Trump administration's action eliminates it entirely, effective for the current compliance period.
Tesla Bears the Brunt
The immediate impact falls hardest on Tesla, which has built a lucrative side business selling regulatory credits to legacy automakers. For 2025, Tesla's regulatory credit revenue exceeded $1.9 billion—more than half of the company's $3.8 billion net profit, according to financial disclosures.
With the multiplier removed, each Tesla vehicle now contributes its actual efficiency rating—approximately 135 MPGe combined for a Model Y Long Range AWD—to fleet calculations. This represents a dramatic reduction from the roughly 900 MPGe equivalent previously allowed, meaning Tesla will generate far fewer excess credits per vehicle sold.
"The compliance math has completely changed," said a former NHTSA official familiar with CAFE regulations. "Tesla wasn't just selling cars; they were selling regulatory headroom. That inventory of credits just became much more expensive to produce."
For legacy automakers, the effect is paradoxically liberating. Companies like General Motors, Ford, and Stellantis now face reduced pressure to flood the market with electric vehicles simply to meet CAFE compliance. With the artificial EV advantage eliminated, their internal combustion fleets—which typically average in the high 20s to low 30s mpg—become less of a compliance liability relative to their EV offerings.
Broader Regulatory Rollback
The FCF rescission accompanies a broader reconsideration of fuel economy targets. The administration is simultaneously preparing to lower the light-duty vehicle fuel economy standard from the Biden-era target of 50.4 mpg by 2031 to approximately 34.5 mpg. This separate action could further suppress demand for regulatory credits, as the compliance bar drops for all manufacturers.
Industry analysts note the combined effect: lower overall standards plus the elimination of the EV multiplier means the regulatory credit market that Tesla has dominated could shrink substantially by 2027.
The Technical Underpinnings
The Department of Energy's final rule, available here, details the methodology behind the petroleum-equivalency factor calculation. The 2000-era rule established a PEF of 82,049 Watt-hours per gallon, based on assumptions about grid efficiency, petroleum refining losses, and vehicle usage patterns that industry critics argued had grown outdated.
The revised approach, which the Trump administration has now accelerated, eliminates what DOE previously characterized as the "fuel content factor"—a multiplier within the equation that environmental groups like the Natural Resources Defense Council and Sierra Club had petitioned to remove beginning in 2021.
What Comes Next
For Tesla investors, the regulatory shift introduces new uncertainty in a year when vehicle sales have already softened. The company's ability to offset declining automotive margins with high-margin credit sales faces a structural challenge that no amount of production efficiency can address.
For consumers, the near-term implications are subtle. Automakers facing less compliance pressure may adjust EV production schedules, potentially affecting vehicle availability and pricing. The Tesla Universal Wall Connector with 24' Cable remains available for home charging, but the calculus for why consumers choose electric may shift as regulatory mandates recede in favor of market-driven adoption.
The full text of the rescission and related policy documents can be accessed through the Reuters reporting on the administration's action.
As the industry digests this fundamental change to the CAFE compliance framework, one thing is clear: the era of treating electric vehicles as mathematically magical contributors to fuel economy has ended, replaced by a more prosaic accounting of miles per gallon, electrons, and the real economics of automotive regulation.