California may block $7,500 Tesla EV rebates if Trump kills tax credit

California will provide its residents with $7,500 rebates for electric vehicles if the incoming Trump administration eliminates the federal EV tax credit, Governor Gavin Newsom declared Monday. And it may seek to exclude Tesla from the subsidy.

Trump’s transition team has indicated that killing the federal EV tax credit is a priority, as it’s viewed as an easy target in a likely Republican-controlled Congress and could provide some cost savings to help offset trillions of dollars in soon-to-expire tax cuts the incoming administration is expected to renew.

The release about the potential program noted that it “would include changes to promote innovation and competition in the ZEV market.” Several news outlets, including Reuters, later on Monday cited the California governor’s office in pointing to market share as the potential reason for a cap affecting Tesla.

The EV maker, as of the third quarter, has a 56% market share of EV sales in the state. And it’s the only automaker who makes EVs in the state on a volume basis.

That prompted Tesla CEO Elon Musk, to write on his X social media platform: “Even though Tesla is the only company who manufactures their EVs in California! This is insane.”

If Trump does nix a $7,500 federal tax credit for EVs, Newsom laid out aims to provide an equivalent amount to California residents with a revival of the state’s Clean Vehicle Rebate Project (CVRP). That program, phased out in 2023, funded more than 594,000 vehicles and saved more than 456 million gallons of fossil fuels since its launch in 2010.

The proposed rebates “would include changes to promote innovation and competition” in the EV market, according to a press release, and could be paid for out of California’s Greenhouse Gas Reduction Fund, which draws its money from the state’s cap-and-trade program.

It’s unclear if California might factor income into rebate qualification. Income and MSRP caps were added to the CVRP in its later years to limit the number of rebates going to the highest-income drivers. And in 2023 the California Air Resources Board (CARB)—which oversees the state’s EV incentive programs—said it would expand the Clean Cars 4 All program aimed at lower-income drivers as a replacement for the CVRP.

Also left out of this incentive would be all the other states that have opted to follow California’s Advanced Clean Cars II framework for vehicle emissions—and its mandate for plug-in vehicles.

The federal tax credit added income and MSRP caps as part of its revamp under the Biden administration’s Inflation Reduction Act (IRA), which also made it an instant dealership rebate, but sourcing requirements that went into effect at the beginning of 2024 also limited the number of EVs that qualify.

Yet the IRA also left the so-called “leasing loophole,” which applies a $7,500 rebate toward leased EVs even if they wouldn’t otherwise qualify for a tax credit. That’s something unlikely to be revived by even California.

UPDATED 5:45 p.m. to include citations pointing to market share and Musk’s response.