California has enacted regulations restricting automobile emissions that are far stricter than national requirements. The Federal government is suing on the theory that Federal regulations, along with Federal law, preempt State regulations. If successful, this would render California’s regulations illegal and without force. The Federal government should win this suit easily, even if California drags it out and into the Supreme Court: our Constitution’s Supremacy Clause—this Constitution, and the Laws of the United States which shall be made in Pursuance thereof…shall be the supreme Law of the Land—is pretty dispositive.

On the other hand, no one is forcing the companies to build cars for sale in California in the first place. It’s expensive to do so, and those increased costs get spread across customers nationwide, because the car makers build all their cars to meet California’s requirements. Those car makers could both reduce their costs of production and so their prices charged the rest of their customers, if they simply built cars according to national standards and stopped selling in California. That would result in a increase in ex-California national sales that would swamp the per-car price reduction, which in turn would produce large aggregate increases in revenue, and profit.