... Effective AM antennas are not exactly small and you have to incorporate one into the design
Nowhere does the requirement say the radio has to come with an Effective antenna. It says AM radio not AM radio antenna.
It just says the vehicle has to come with a radio. They can potentially include a radio in the car that Won't have very good reception, and won't ever give you clean audio due to interference, but it would still meet the definition of an AM radio.
And the owner might just have to bring their own temporary antenna to use it.
Eh, I don't think that's gonna work.
That's not how courts and laws work. This isn't some movie where you have to word things perfectly for a malicious genie. A judge and/or jury would conclude that an "AM radio" necessarily has to be one that actually works in the scenario it is in.
Some judges would even rule that on the basis of the lawmakers' intent; meaning that for democracy to actually be real then the law that gets enforced has to be the one the lawmakers actually thought they were passing, not some creative or new interpretation someone is making now.
Either way, the result would be "nuh uh, it has to be a working AM radio."