Is California Discriminating Against Tesla?

Tesla may face challenges in qualifying its electric vehicles for California's new state tax credits.

Governor Gavin Newsom's office stated that the elimination of the federal $7,500 EV tax credit, which has been considered by President-elect Donald Trump’s transition team, could shape the direction of California’s approach to subsidizing zero-emission vehicle sales such as those sold by Tesla. Elon Musk, Tesla’s CEO, has come under fire for his role in supporting the Republicans.

Musk publicly criticized the prospect of excluding Tesla from future state subsidies, highlighting that Tesla is the only automaker actually manufacturing EVs in California. However, Musk, has previously expressed support for ending subsidies across all industries, including for EVs, oil, and gas.

California's Clean Vehicle Rebate Program, which ended in 2023 after allocating $1.49 billion to subsidize over 594,000 vehicles, may see a revival under Newsom’s administration. The governor has proposed a new program that could be funded by the state’s Greenhouse Gas Reduction Fund, which collects revenue from California’s cap-and-trade program.

According to Bloomberg, the state faces financial pressures, with a projected $2 billion budget deficit next year, adding complexity to funding discussions. EVs currently account for 22% of California’s vehicle sales, with 293,000 sold as of September 30. However, details of the potential program—including cost estimates, its alignment with the federal $4,000 tax credit for used EVs, and eligibility requirements based on income or vehicle price—remain unclear.

California plans to phase out sales of gasoline-only vehicles by 2035, with rules requiring that 80% of new vehicles sold be electric and only 20% be plug-in hybrids. These ambitious goals have drawn skepticism from major automakers.

Tesla and California's leadership have had a contentious relationship in recent years. During the COVID-19 pandemic, Musk openly criticized the state's shutdown orders that impacted Tesla’s Fremont factory. In 2021, Tesla relocated its headquarters to Texas, with Musk hinting that other ventures like SpaceX and social media platform X may follow.

Is this payback? Maybe.

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