Tesla, the 'Frenemy,' Excluded from California EV Tax Credit?... Musk Calls It "Crazy" (Summary)

Gavin Newsom, the Democratic frontrunner for the next U.S. presidential election and Governor of California, promised state-level support for electric vehicles even if the federal electric vehicle tax credit is abolished after President-elect Donald Trump’s inauguration in January next year. However, Tesla, the market leader, is expected to be excluded from the support due to market share restrictions. Elon Musk, Tesla’s CEO, who has been in conflict with the California state government for years, immediately reacted by calling it "insane."

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According to Bloomberg News and others, Newsom, a Democrat, stated on the 25th (local time) that if the Trump administration’s second term abolishes the electric vehicle tax credit benefits under the Inflation Reduction Act (IRA), California would reinstate the eco-friendly vehicle rebate program it had previously implemented. He said, "If the Trump administration removes the (electric vehicle) tax credit, we will intervene to strengthen our commitment to creating clean air and green jobs in California," adding, "We will not give up on the future of green transportation and will make driving non-polluting vehicles more affordable."

This announcement drew attention amid expectations that the Trump administration, starting in January next year, would reduce or abolish the IRA, a major achievement of the Biden administration, potentially eliminating the electric vehicle tax credit of up to $7,500. Governor Newsom, who has opposed Trump’s policy stance, expressed his intention to support electric vehicles at the state level.

Previously, California operated a rebate program from 2010 to 2023 for zero-emission vehicle buyers, providing up to $7,500 per electric vehicle. Reinstating this program requires approval from the state legislature, but since California is a Democratic stronghold, it is expected to be relatively easy. Additionally, Governor Newsom convened a special meeting next month to discuss increasing the state government’s litigation budget in preparation for potential lawsuits against the federal government after the Trump administration’s second term begins.

Gavin Newsom, the next potential presidential candidate from the US Democratic Party and Governor of California. Photo by AP Yonhap News.

However, Tesla is expected to be excluded from Governor Newsom’s electric vehicle tax credit support. Newsom’s office confirmed to Bloomberg News that the market share restriction, which excludes Tesla’s popular electric vehicle models from the benefits, is included. The governor’s office stated, "This is to create market conditions that allow more automakers to establish themselves," adding that details may change during consultations and discussions with the state legislature. The New York Times (NYT) also reported that Tesla would be excluded from California’s electric vehicle tax credit.

As a result, Newsom’s proposal is seen as targeting not only President-elect Trump but also CEO Musk simultaneously. Musk, who has been thriving as a close ally of Trump, immediately opposed California’s announcement. He shared the Bloomberg article on his X (formerly Twitter) account, stating, "This is insane."

Tesla accounted for 56% of new electric vehicles sold in California in the third quarter. With concerns about weakening electric vehicle demand, excluding only Tesla’s vehicles from the tax credit support is expected to significantly impact its sales. Jin Munster, a partner at Deepwater Asset Management, said, "It’s like spitting in Tesla’s face." On the day of the announcement, Tesla’s stock closed down 3.96% during regular trading on the New York Stock Exchange and continued to fall by over 1% in after-hours trading.

Elon Musk, CEO of Tesla. Photo by AP Yonhap News

The conflict between Governor Newsom, who leads the blue state of California, and CEO Musk has continued for years. Previously, Musk criticized California’s high living costs and various regulations, relocating Tesla, space company SpaceX, and X headquarters to Texas. During the pandemic, he condemned the state government’s administrative order to shut down Tesla’s Fremont factory and even called it "fascist" during an earnings conference call. Governor Newsom also responded to Musk’s announcement of the headquarters relocation by saying Tesla owes part of its success to California.

Bloomberg News reported, "Democratic presidential hopeful Newsom and Republican power player Musk are clashing," adding, "Newsom’s position within the progressive camp could be further strengthened as he confronts Musk, who accepted a role as head of the government efficiency department in the Trump administration."