California could leave Tesla out of a proposed EV rebate programme

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Elon Musk’s Tesla could miss out on lucrative tax rebates in California for electric vehicles being considered by the state’s Democratic governor, Gavin Newsom.

The proposals Newsom unveiled on Monday are part of the governor’s broader effort to insulate California from Donald Trump, the president-elect who has threatened to roll back green subsidies and is widely expected to eliminate the federal EV tax credit after he takes office in January.

Should Trump make good on his pledge to do away with the federal tax credit — worth as much as $7,500 for purchased or leased vehicles — Newsom said California, the country’s most-populous state with 39mn residents, would set up its own scheme.

“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,” he added.

Newsom’s spokesperson said the proposals would include a “market cap” element that could exclude larger companies such as Tesla in an attempt to encourage smaller and newer EV makers, although the exact details would be subject to negotiation with California’s legislature, he said.

Musk responded to reports about the potential exclusion on his social media platform X, writing “Even though Tesla is the only company who manufactures their EVs in California! This is insane.”

Newsom and Musk have clashed on X before, with the world’s richest man vowing in July to redomicile two of his companies, SpaceX and X, to Texas from California in response to a law that bars school districts in that state from requiring parents to be notified of a child’s gender identification change.

In 2021, Musk had moved Tesla’s headquarters out of California to Austin, Texas, following frustration with California’s Covid-19 policies and citing high housing costs and a lack of space as reasons for the move.

Tesla Model Y remains the top-selling vehicle of any kind in California, with 105,693 registered in the state in the first nine months of 2024 and a market share of 11 per cent, according to the California New Car Dealers Association. The next most popular car was the Toyota RAV4, which sold 49,810.

Tesla’s Model 3 sedan was the second-best selling electric or hybrid vehicle after the Model Y. However, the company’s sales have fallen almost 13 per cent in California this year despite total EV sales rising slightly, leaving it with a market share of 55 per cent, down from 63 per cent in 2023.

Dealers have suggested Musk’s increasingly outspoken and divisive political views on social media have softened demand in the predominately liberal state, combined with his unprecedented support of Trump in the election.

Tesla shares fell 4 per cent on Monday, but have still surged about 40 per cent since Trump’s re-election on November 5.