Elon Musk Faces New Challenges as California Targets Tesla

As Elon Musk strengthens his influence in Washington, the state that helped build his fortune is preparing for a political clash. California Governor Gavin Newsom is positioning the state as a counterforce to former President Donald Trump’s policies, with a plan that directly impacts Musk’s Tesla Inc.

California’s Response to Federal Subsidy Cuts

On Monday, Newsom unveiled a proposal aimed at mitigating the effects of potential federal subsidy cuts for electric vehicle (EV) buyers under the incoming administration. The plan includes offering rebates to EV buyers should the federal government end its subsidies. Additionally, the proposal includes market-share restrictions that could exclude some of Tesla’s most popular models, sending a clear message about the state’s stance on Musk’s business empire.

A Complex Relationship Newsom vs. Musk

The relationship between Musk and Newsom has been a subject of tension. Musk, a vocal critic of California’s regulations, relocated Tesla’s headquarters to Texas in 2021, citing disagreements over pandemic restrictions and, more recently, policies regarding gender identity in schools. Despite this, the two seemed to make amends last year when they announced a new Tesla global engineering headquarters in Palo Alto.

Trump’s Unconventional Cabinet Faces Senate Confirmation Battles

President-elect Donald Trump’s unconventional cabinet in modern American history, filled with controversial…

Newsom’s Push Against Trump’s Agenda

Newsom, who is seen as a potential contender for the presidency, is intensifying efforts to block the Trump agenda. He has called for a special legislative session to secure additional funding for the state’s Department of Justice, allowing California to challenge federal policies or defend against lawsuits. Additionally, Newsom has been touring Republican strongholds, promoting California’s economic achievements and reaffirming his commitment to climate-friendly policies.

Tesla’s Market Power and Rebate Exclusions

Tesla’s dominance in the EV market complicates the state’s proposal. Tesla accounted for 54.5% of EV registrations in California in the first three quarters of 2024, a slight decline from 63% the year before. Despite the drop, the company remains the leading EV manufacturer in the state, with competitors like Hyundai far behind. Newsom’s proposed rebate exclusion could impact Tesla’s finances but may also provide room for smaller automakers to compete.

Challenges in California’s EV Strategy

The proposal aims to boost market competition, but some experts are skeptical about its effectiveness. Jessica Caldwell, executive director at Edmunds, argued limiting Tesla rebates could hinder EV sales growth. Tesla’s large market share complicates efforts to increase EV adoption, according to Caldwell. RBC Capital Markets analyst Tom Narayan questioned the logic behind the proposal, given California’s 2035 zero-emission vehicle mandate.

Political and Financial Implications for Tesla

Excluding Tesla from California’s EV credits could have significant financial implications for the company. Tesla’s strong market presence may help it weather policy shifts. Smaller players, however, may benefit from a more level playing field. UC Davis’s Gil Tal noted Tesla may not need the rebate as much. Nonetheless, its exclusion could still undermine competition in the EV market.

A Punitive Proposal or a Strategic Move?

Political analyst Dan Schnur characterized Musk and Newsom’s relationship as a “love-hate” dynamic. The proposal aims to foster competition. Some view it as punitive, especially given California’s historical stance on renewable energy companies. Newsom’s plan could influence the future of California’s EV market. It also intensifies the political struggle between Newsom and Musk.