Tesla Excluded From EV Buyer Credits in California Proposal

(Bloomberg) — Tesla Inc.’s electric vehicles would be excluded from consumer rebates proposed by California’s governor, a decision aimed at spurring greater competition that’s likely to draw the ire of Elon Musk.

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California Governor Gavin Newsom on Monday unveiled plans to offer state incentives to EV buyers if US President-elect Donald Trump repeals a federal subsidy after he takes office next year. Newsom, a prominent Democrat who has fashioned himself a climate leader, said in a statement that a program California phased out in 2023 could be rebooted to provide car buyers relief in lieu of a $7,500 tax credit targeted by Trump.

The governor’s office told Bloomberg News that the current proposal includes market-share limitations that would exclude Tesla’s popular EV models. The details will be under negotiation with the state legislature and could change.

“It’s about creating the market conditions for more of these car makers to take root,” according to the office of the governor.

Tesla didn’t immediately respond to a request for comment.

The move would cut market-leading Tesla out of a key incentive program aimed at spurring wider adoption of EVs at a time of slowing growth for all-electric vehicles. Tesla’s models do qualify for the federal credit, which was introduced as part of President Joe Biden’s signature climate bill, the Inflation Reduction Act.

Excluding Tesla threatens to further heighten tensions between Newsom and Musk, which have been strained for years. Tesla’s chief executive officer moved the automaker’s headquarters to Texas in 2021, in part citing frustration with California’s politics.

Musk had angrily denounced state orders to close Tesla’s Fremont factory during the Covid-19 pandemic, labeling them “fascist” in an earnings call. When Musk announced the headquarters move, Newsom said Tesla owed some of its success to California.

Tesla still accounts for more than half of all new EVs sold in California, but its grip on the market is slipping. Tesla’s sales in California fell 12.6% during the first three quarters compared with a year earlier, even as overall electric-vehicle sales in the state rose 1%, according to the California New Car Dealers Association. Tesla made 54.5% of all EVs registered in the state during the first three quarters, a significant drop from 63% during the same period last year.

Trump Clashes

California clashed with Trump frequently on auto emission regulations during the incoming president’s first term, and the state’s leaders have made clear they are now girding for another fight. Newsom already has sought to shield the state’s policies on issues including reproductive rights, climate and immigration from potential threats under a Trump administration.

Trump has long criticized the Biden administration’s efforts to subsidize EVs in a bid to boost adoption of cleaner cars. His transition team is now looking to slash fuel-efficiency requirements for new cars and light trucks as part of plans to unwind Biden policies the president-elect has blasted as an “EV mandate,” Bloomberg News reported last week.

California, as well as states including Oregon and Colorado, currently are exempt from rules that preempt them from enacting their own emissions standards for new vehicles. More than a dozen states representing more than a third of the US auto market now have formally opted to follow California’s rules.

Trump in his first term targeted California’s right to set tougher gas mileage rules than the federal government. He is expected to make another attempt to roll back the California carve out under the 1970 Clean Air Act after taking office in January.

Tesla shares were down 0.8% as of 1:42 p.m. in New York.

–With assistance from Gabrielle Coppola, Ryan Beene and Brian Eckhouse.

(Updates with additional details throughout.)