The relationship between Tesla and California’s state policies is facing renewed strain as a proposal emerges that could exclude the EV giant from new state tax credits. This development arises as President-elect Donald Trump considers eliminating the federal EV tax credit, a move that has sparked controversy across the electric vehicle industry.
President-elect Trump’s transition team is reportedly mulling over the removal of the $7,500 federal tax credit for electric vehicle purchases. This potential policy shift has prompted California Governor Gavin Newsom to propose reviving the state’s Clean Vehicle Rebate Program, which previously supported over 594,000 vehicles with $1.49 billion in funding. However, Tesla, despite its significant manufacturing presence in California, may find itself excluded from these state-level incentives.
Tesla and California’s Complex Relationship
Tesla CEO Elon Musk, a vocal advocate for ending subsidies across industries, criticized the exclusionary proposal, calling it “insane” given Tesla’s status as the only EV manufacturer operating in California. This marks the latest flashpoint in a strained relationship between Musk and California’s leadership, following past disagreements over pandemic-related factory closures and other policy decisions.
California faces a looming $2 billion budget deficit, which is influencing the structure and funding of the proposed ZEV rebates. The revamped program may utilize the Greenhouse Gas Reduction Fund, supported by the state’s cap and trade program. However, concerns about market competition and cost allocation remain, especially as EVs continue to capture 22% of California’s auto sales.
The exclusion of Tesla from these state incentives could have broader implications for market dynamics. California’s ZEV mandate, requiring 80% of new vehicle sales to be electric by 2035, already sets ambitious goals for the industry. With California crossing the milestone of 2 million zero-emission vehicles sold, doubling since 2022, policies affecting major players like Tesla may ripple across the EV market.
So…
As negotiations between Governor Newsom and the legislature progress, the final structure of the Clean Vehicle Rebate Program remains uncertain. The potential alignment with federal tax credit caps and income restrictions will likely influence its reception. Meanwhile, Tesla’s stock continues to feel the impact, closing down 4% following the news, as stakeholders brace for significant policy changes.
California’s push toward electrification underscores the evolving landscape of the automotive sector, but the exclusion of key industry players raises questions about the balance between fostering competition and maintaining fairness.
