California May Introduce Electric Vehicle Rebates if Federal Tax Credit Axed

The incoming Trump administration plans to axe the $7,500 consumer tax credit for electric-vehicle purchases, sources told Reuters earlier this month. But California isn’t dreaming of toeing the line. 

On Monday, Gov. Gavin Newsom said the Golden State “will intervene” and provide rebates to residents on its own if the tax credit goes the way of the Fisker.

Point of No Return on Investment

That will certainly ease the sting given the size of the California market, but eliminating the tax credit will be a blow to all EV makers including America’s largest EV manufacturer, Tesla, whose founder has been the life of Mar-a-Lago. But Tesla, Reuters reported, has been supportive behind the scenes in its conversations with the Trump transition team. That may sound surprising, except that CEO Elon Musk, who claims to be against all government subsidies, thinks it’ll hurt his rivals much more than it’ll hurt him: “It would be devastating for our competitors, and it would hurt Tesla slightly, but long term it probably actually helps Tesla.”

The math to support his thinking is pretty straightforward:

• US automakers — including Detroit’s Big Three of Ford, GM and Stellantis — invested $146 billion to develop electric vehicles in the three years leading to 2024, according to the Center for Automotive Research. To recoup those investments, some are selling EVs at a loss for the time being, whereas Tesla is in moneymaking mode.
• Ford’s EV segment is on track to lose $5 billion this year, up from $4.7 billion last year. GM forecasts it will shrink its EV losses by at least $2 billion next year — but both Detroit giants take advantage of EV tax credits to boost demand. Late Monday, the Biden administration approved a $6 billion loan to an all-electric Tesla competitor, Amazon-backed Rivian, to build a factory in Georgia.

California leads the US in EVs, accounting for 37% of registered light duty EVs according to the US Energy Information Administration. If a national tax credit fell through, an offsetting rebate in the Golden State would be a major cushion for automakers.

Lucky Lobbyists: Trump can’t eliminate the EV tax credit without Congress amending the Inflation Reduction Act of 2022 and passing a new law to eliminate the credits. With the GOP poised for control of the House and Senate, that makes the move likely but not imminent, meaning there’s plenty of time for industry lobbyists on K Street to feast.