Newsom says California will offer EV subsidies if Trump kills federal tax credit

The expectation that President-elect Trump and Republicans in Congress will seek to remove a lucrative tax credit for electric vehicles, which has already split the auto industry, prompted California Gov. Gavin Newsom (D) to announce Monday that the state would seek to revive its own buyer-assistance program if the federal subsidy is eliminated.

“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 said in a statement.

Trump and the new Republican-controlled Congress are expected seek the repeal of a $7,500 credit for people who buy new electric vehicles that was a key part of the Inflation Reduction Act that President Joe Biden signed into law two years ago. The elimination of the widely used credit would form part of a broader effort by the new administration to pull back federal support for EVs after a concerted push by Biden and his allies to get Americans out of gas powered cars to cut climate-warming emissions.

The plan Newsom outlined Monday adds another dimension to the complex politics of electric vehicles, which have led to unusual alliances and enmities in recent years.

The California plan could exclude Tesla under limits based on market size, Newsom’s office said Monday, prompting criticism from Tesla CEO Elon Musk, who called the idea “insane.”

“Even though Tesla is the only company who manufactures their EVs in California!” Musk said in a post on X.

Much of the auto industry has urged Trump to maintain the federal subsidies. But Musk, whose company is the EV market leader and who is a key Trump ally, has said he supports getting rid of them. He said in a July earnings call that the loss of the credits will hurt him slightly but “be devastating for our competitors.”

Some analysts think Tesla would still get caught in the fallout of a repeal. But Dan Ives, a managing director at financial firm Wedbush Securities, said the credits have helped level the playing field for companies trying to catch up with Tesla and that Tesla ultimately stands to benefit from their elimination.

“It’s like a jigsaw puzzle and there’s so many different players, and in a ‘Twilight Zone’ world Musk has a key to 1600 Pennsylvania Avenue and that’s not a good thing for the other EV players,” Ives said.

Analysts expect that if the credit were repealed it would slow the growth of EV sales. An analysis by a team of economists at four universities said the loss of the subsidy could shrink the registration of new EVs by 27% in coming years.

Tesla did not respond to requests for comment. Trump’s transition team did not share specifics on what approach he would take to the credit but said he had been elected with a mandate that included “stopping attacks on gas-powered cars.”

“When he takes office, President Trump will support the auto industry, allowing space for both gas-powered cars AND electric vehicles,” transition spokeswoman Karoline Leavitt said in a statement.

Transportation is the nation’s biggest source of carbon emissions, driven in large part by people’s personal cars and trucks. The Biden administration implemented a raft of policies designed to shift people into cleaner vehicles.

Officials have significantly tightened emissions standards, so that by 2032 more than half of new vehicles would need to be battery powered and an additional 13% plug-in hybrids. The government has funded a network of high-speed chargers near highways in the hopes of giving drivers the confidence they can take their EVs wherever they need to go. And the Inflation Reduction Act provided financial aid for the production of batteries, as well as help for consumers.

The auto industry has largely gone along with the current administration’s approach, investing in new models of electric vehicles, including the SUVs and pickup trucks that vehicle buyers tend to favor. The industry has emphasized how support for American manufacturers provides a counterweight to China, mirroring the hawkish tone taken by many Republicans in Washington.

The Alliance for Automotive Innovation, the automakers’ leading lobby group, said in a letter to Trump this month that the industry wanted stability and predictability and called for the continuation of existing tax incentives.

Car buyers are increasingly opting for battery-powered models, but they still represent a fairly small share of overall sales. Electric vehicles have accounted for more than 8% of the U.S. market since June, according to an analysis by S&P Global Mobility released Monday. The ratings agency said there could be an uptick in sales in the final weeks of the year as buyers race to claim the tax credit before Trump and GOP lawmakers kill it. The average $56,902 cost of a new EV remains higher than a conventional vehicle at $48,623, according to Kelley Blue Book - although even without the credit the price difference can be offset by lower fuel and maintenance costs.

Consumers have claimed the credit 300,000 times this year, according to the Treasury Department, saving a combined $2 billion. The program currently provides credit of up to $7,500 for new vehicles that are assembled in the United States and meet other domestic production requirements. Used-car buyers can claim up to $4,000.

Steps taken by states to offer subsidies of their own could ease the blow from the loss of federal help. In California, Newsom would be attempting to shore up the nation’s largest market for EVs. His office announced Monday that more than 2 million zero-emission vehicles had been sold in the state and accounted for more than a quarter of sales in recent months.

If the federal credit goes away, the governor promised his state would intervene by reviving a state-level rebate program that was phased out last year. Newsom suggested the funding for the program could come from California’s “cap and trade” program, which seeks to limit greenhouse gas emissions by making polluters buy and sell emission credits.

Newsom’s announcement is the latest move by a blue-state governor to get ready for the potential consequences of a second Trump administration. Newsom has already called a special legislative session for December to “protect California values” as Trump’s second term looms.

While the political fights are likely to be intense in the coming months, long term, analysts expect that electric vehicles will not need subsidies to compete with gas-powered ones. They say long-range, affordable models backed by a robust network of chargers will ultimately win over consumers.

The battery-powered car “will be the dominant technology within a decade,” said Chris Harto, an analyst at Consumer Reports.