If the Trump administration moves forward with plans to end federal EV tax credits California Gov. Gavin Newsom plans to activate state rebates to help maintain the state’s role as the biggest market for battery-electric vehicles. But there’s a catch: the governor plans to initiate a market cap that would likely exclude the state’s best-selling EV brand: Tesla.
California Gov. Gavin Newsom wants to keep demand building for EVs and sees incentives as a critical tool.
Elon Musk has made few friends in California, at least of late, having moved Tesla’s headquarters from California to Texas and repeatedly taking shots at state officials, notably Gov. Gavin Newsom. Now, it seems, the governor will take a shot back.
President-elect Donald Trump has indicated he likely will eliminate federal tax credits for EV buyers, something that Musk has said he’d support. It would be a move clean energy proponents fear would further depress demand for battery-electric vehicles. If that happens, Newsom signaled this week, he would likely reactivate his state’s Clean Vehicle Rebate Program which expired in 2023.
But there’s a catch. Newsom indicated a reactivated incentive program would carry a market cap. And it thus would likely exclude the state’s most popular EV brand: Tesla. Musk called that possibility “insane.”
The back story, part 1
As he has turned increasingly to the political right, Musk has taken numerous shots at Democrats, especially those in California where, until three years ago, Tesla was headquartered. Musk also defied start regulators on a variety of occasions, notably refusing to obey guidelines during the COVID pandemic.
Musk has been a frequent critic of California leaders and policies – though the state is Tesla’s largest market in the U.S.
He now has now relocated Tesla’s corporate offices to Texas, though it maintains its original factory in Fremont, California where it produces all product lines except the Cybertruck.
Despite Musk’s ongoing attacks on state officials and policies, Tesla has remained the best-selling EV brand in the Golden State – as it is in the U.S., as a whole – though it is facing increased competition from brands like Chevrolet, Hyundai and Toyota that are beginning to chip away at its market share.
The back story, part 2
EV sales growth, in general, has slowed down over the past year. Where U.S. demand surged 800% from 2019 to 2023 it is on a 10% growth trajectory for all of 2023, according to J.D. Power and other market trackers. Some of the slowdown has been blamed on tightened rules for EV incentives contained in the Biden administration’s Inflation Reduction Act. It set a variety of strictures, including sourcing requirements that disqualified purchases of more than half of the EVs now on the market – though a loophole lets most customers still collect up to $7,500 in tax credits when leasing.
Notoriously skeptical of green energy – even suggesting windmills cause cancer – Donald Trump has only reluctantly embraced EVs. He told a Georgia rally last summer that he had no choice once Elon Musk started pumping millions of dollars into his campaign coffers.
Nonetheless, Trump’s transition team has signaled the incoming president will cancel the EV tax credit program entirely. And, despite his seeming dependence on such incentives, Musk has said he would support that move.
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California steps in
Losing federal tax incentives could hurt EV growth, experts warn.
California is the largest U.S. market for zero-emission vehicles, or ZEVs – a category that includes not only EVs but a sprinkling of alternatives, such as hydrogen fuel-cell vehicles. They currently account for roughly a quarter of the state’s new vehicle sales, according to the California Energy Commission.
And the governor doesn’t want to see that trend collapse, something proponents fear could happen with the demise of the federal tax credits. So he plans to reactivate the Clean Vehicle Rebate Program if Trump ends the national program. Before it expired last year, California provided $1.49 billion in incentives to nearly 600,000 ZEV buyers.
But the revised program would have that catch, Newsom’s office said in a statement noting, “The governor’s proposal for ZEV rebates, and any potential market cap, is subject to negotiation with the legislature. Any potential market cap would be intended to foster market competition, innovation and to support new market entrants.”
California’s plan could be a boon to Tesla competitors, such as Hyundai which launched the new Ioniq 9 at the LA Auto Show.
Musk fires back
For his part, Musk derided the plan, calling it “insane,” and noting that Tesla is the only EV manufacturer in California.
California’s EV market has seen sales double since 2022 and continues to grow at a faster pace than the rest of the U.S. All told, there are now more than 2 million of the vehicles registered in the state. So, missing out on incentives could be a real disadvantage for Tesla, even as the number of competing EVs continues to grow. At the Los Angeles Auto Show last week, Hyundai launched its all-new EV9, entering the three-row segment and challenging the likes of the already more expensive Tesla Model X.
After surging in the wake of the presidential election, Tesla stock has taken a sharp tumble, closing down 4% on Tuesday after the Newsom announcement.
It’s like Michigan increasing taxes on all companies with names starting with the letter F and ending in D.
For the benefit of D’s (that’s Ford).