California Governor Gavin Newsom has stirred controversy — including criticism from Elon Musk — with his new proposal for electric vehicle (EV) incentives that would exclude Tesla’s (TSLA) popular models.
Newsom’s initiative is designed as a state-level response to the Inflation Reduction Act (IRA), which offers a $7,500 federal tax credit for EV buyers, a policy President-elect Donald Trump is likely to repeal.
The proposal involves reviving a discontinued state program, including market-share restrictions that would disqualify Tesla EVs like the Model Y from receiving incentives.
However, a spokesperson from Newsom’s office informed that the details are still under consideration.
“Even though Tesla is the only company who manufactures their EVs in California! This is insane,” Musk wrote on X. Tesla produces the Model Y, 3, X, and S at its Fremont, California, factory.
If implemented, the plan could advantage Tesla’s competitors in California — the largest EV market in the U.S. — as the EV sector faces slowing sales growth and automakers seek to bolster their product lines.
Currently, most Tesla EVs qualify for the IRA’s tax credits, although Musk has publicly advocated for eliminating all federal subsidies for passenger vehicles.
RBC Capital Markets (RY) analyst Tom Narayan observed that Newsom’s proposal could negatively affect Tesla, emphasizing that federal EV tax credits help the company compete with traditional gas-powered vehicles.
Meanwhile, Wedbush Securities’ Dan Ives predicted the possibility of a “Game of Thrones Battle vs. Musk” if Newsom moves forward with the proposal, speculating that Tesla might consider shifting jobs from Fremont to its Austin, Texas, facility.
“This is clearly a political move of Newsom and California towards Musk, who now has a front seat to the Trump White House and will be a key player in ultimately getting these federal tax credits wiped away,” Ives wrote.
This disagreement is the latest in a series of clashes between Newsom and Musk.
During the COVID-19 pandemic, Musk frequently criticized California’s shutdown orders that temporarily closed Tesla’s Fremont factory, denouncing the restrictions as “fascist” and demanding to “FREE AMERICA NOW.”
Musk reopened the facility in May 2020 without official permission and later relocated Tesla’s headquarters to Texas, where the company is now based.
Although Musk’s alliance with former President Trump and the Republican Party has alienated many Democrats, not all members of the party support Newsom’s proposal.
“Tesla makes over 550,000 vehicles in Fremont in my district & employs over 20,000.
Let’s not play politics with keeping manufacturing in California. It would be foolish to exclude Tesla,” Representative Ro Khanna, who represents California’s 17th Congressional District, wrote on X.
“Have we learned nothing from snubbing @elonmusk at the Biden EV summit?” Khanna added, referencing a 2021 White House event where President Joe Biden celebrated the EV initiatives of General Motors (GM), Ford (F), and Stellantis (STLA) while excluding Tesla.
Musk has long resented this perceived slight, which has contributed to his alignment with Republicans.
