Californian governor wants to exclude Musk’s Tesla from EV incentives

California’s Governor Gavin Newsom has unveiled a proposal to revive the state’s electric vehicle rebate program in response to former President Donald Trump’s pledge to eliminate the federal EV tax credit. However, the proposed plan includes a controversial exclusion of Tesla models, the state’s leading EV manufacturer. Elon Musk labeled the move as “insane.”

As Trump plans to torpedo Biden’s federal tax credits, California is considering upholding an incentive of up to $7,500 for new EV purchases for its residents. The initiative is intended to mitigate the impact of Trump’s plan and proceed despite the upcoming headwinds.

It’s a fight in its own right as the president-elect is also looking for ways to undercut specific CO2 targets and restrictions, independently laid out by some states. The new prerequisite by Newsom’s office is that the rebate’s structure includes “market-share limitations,” specifically designed to foster competition and support newer market entrants.

This means that Tesla, which dominates the EV market and sells more than 50% of new electric vehicles in California, would be excluded. Newsom stated the move aims to create conditions for emerging manufacturers to “take root” and challenge Tesla’s market dominance.

Musk fires back

Tesla CEO Elon Musk criticized the proposal on social media, arguing it undermines the very industry California seeks to support. Musk highlighted that Tesla is the only automaker manufacturing EVs in the state, employing thousands at its Fremont factory and design offices.

“Even though Tesla is the only company manufacturing their EVs in California! This is insane,” Musk posted on X. He also pointed out that the exclusion could harm California’s economy, potentially leading to job cuts and production shifts to his company’s newer facilities in Texas.

With Rivian located in Palo Alto, Lucid Motors in Newark, and some smaller players like AC Propulsion or Mullen Automotive scattered around the state, Tesla isn’t the only EV maker present. But the others don’t reach their heels regarding production and sales.

Just like after Covid?

Industry analysts warn the proposal risks alienating Tesla, a key player in California’s clean energy push. The brand has been there before. In 2021, Musk moved its headquarters from Palo Alto, California, to Austin, Texas, following disputes with California regulators over COVID-19 restrictions.

Musk called these ‘fascist’ because his workers at the Fremont factory were not allowed to leave their homes, risking an arrest. Critics argue that excluding Tesla may hinder rather than foster EV adoption.

“To make it more affordable”

The revived rebate program would build on California’s previous Clean Vehicle Rebate Program, which funded nearly 600,000 EVs and saved over 450 million gallons of fuel before ending in 2023. Newsom’s plan suggests funding could come from the state’s Greenhouse Gas Reduction Fund, financed by polluters under the cap-and-trade program.

Tesla accounted for 42% of vehicles subsidized under this previous rebate program, and its vehicles have been instrumental in popularizing EVs in the state. Supporters, however, maintain that the market-share cap could stimulate innovation and encourage broader participation in the growing EV market.

“We’re not turning back on a clean transportation future — we’re going to make it more affordable for people to drive vehicles that don’t pollute,” Newsom stated. California is an example of EV adoption in the US.