Gavin Newsom is rebooting EV incentives in California, but excluding Tesla, $TSLA

Tesla Inc.’s electric vehicles could be excluded from California consumer rebates under a proposal by Governor Gavin Newsom, setting up a political showdown between the Democratic governor and Tesla CEO Elon Musk, a key Republican ally.

Newsom's Proposal

Governor Newsom unveiled a plan on Monday to reinstate state rebates for electric vehicle (EV) buyers if President-elect Donald Trump eliminates the federal $7,500 EV tax credit. Newsom’s office stated that the revived California program might include market-share restrictions, potentially excluding Tesla’s popular models from the incentives.

“This is about fostering competitive market conditions to encourage more automakers to establish themselves in California,” Newsom’s office said. Negotiations with the state legislature could lead to adjustments, including Tesla’s potential inclusion or exclusion.

Musk's Response

Musk criticized the proposal as “insane” on X, formerly Twitter, pointing to Tesla’s significant manufacturing operations in California. Excluding Tesla would deny the state’s top-selling EV brand access to incentives intended to boost electric car adoption, at a time when the EV market is facing slower growth. Tesla vehicles remain eligible for the federal tax credit introduced under President Joe Biden’s Inflation Reduction Act.

“This is a direct slap at Tesla,” said Gene Munster, managing partner at Deepwater Asset Management, describing the proposal as politically charged.

Political Tensions

The proposal reflects long-standing friction between Newsom and Musk. Tesla moved its corporate headquarters to Texas in 2021, citing frustration with California’s regulatory environment. Musk also criticized California’s pandemic restrictions, calling them “fascist” when they temporarily shuttered Tesla’s Fremont factory. In response to Tesla’s departure, Newsom pointed out that California had played a crucial role in Tesla’s rise.

Excluding Tesla from rebates may enhance Newsom’s appeal to progressive voters as he distances himself from Musk, who has become a prominent figure in Trump’s administration, helping to spearhead efforts to reduce federal spending. Musk has said he supports phasing out federal subsidies.

Implications

The exclusion of Tesla from California’s rebate program could reshape the EV landscape by incentivizing buyers to consider alternatives. It also underscores the growing divide between Musk’s vision for Tesla and California’s broader clean-energy policies. As negotiations over the proposal continue, the outcome could set a precedent for how EV incentives are structured in other states.