These are the days of the vanishing federal EV tax credit. The $7,500 incentive, which has driven growth in the U.S. EV market, is going away at the end of the month. Now, buyers in California aren’t going to see the state government step in with its own version. From Bloomberg:
“We can’t make up for federal vandalism of those tax credits,” [Gov. Gavin] Newsom said during a press conference in San Francisco. The state will support expanding EV infrastructure, but “not the direct subsidies that we cannot make up for,” the Democrat said.
Bloomberg explained that the sticking point is a persistent budget deficit in California; Newsweek puts it at $17-25 billion every year moving forward, and also notes that the state is losing $16 billion in federal money. Newsom is clearly not happy about the whole situation and sniped at GM CEO Mary Barra over the company’s lack of support in the transition. Although it had scheduled to ban gas-burning vehicles by 2035, this was recently undermined by Congress. According to Newsom, Barra “sold us out.”
California bailing on EV credits is representative of a larger trend
This whole fracas does bring up the question of how long EV incentive should last. While tax credits certainly had a role to play when the market was starting out, should we keep them going even as EV sales start to seriously displace those of gas vehicles and there are more companies than Tesla vying for customers? Proponents would say yes and add that incentives are more important now than ever, as EV market growth slows and automakers reassess their once-ambitious plans.
It’s also not like gas cars don’t benefit from their own, somewhat hidden subsidies. I’ve often pointed out that the federal gas tax hasn’t been raised since the early 1990s, which is a very big break for Big Oil. You also have to consider how the federal EV tax credit might have distorted the market, even as it was enabling it to expand. For most of its history, it was a credit that could be claimed only if you made enough money to owe something to the IRS. This bent its advantages toward affluent buyers, many of whom lived in California.
Newsom chose to prioritize budget deficits over EV incentives
Governor Newsom’s reaction is understandable, as every attack on California is a chance for him to oppose the Trump administration ahead of a potential run for president in 2028. He perhaps didn’t need to diss Mary Barra, a consummate diplomat-CEO who has carefully calibrated the General’s relationship with the White House for years. Yet he might be in an awkward position as governor of the country’s largest EV state at a time when the EV market in the U.S. is slowing down. His constituents want their electric cars and their incentives. Yet nationally, the future of EVs is unclear. Newsom knows California’s huge deficits could be a political liability.
Newsom might have calculated that, apart from issuing some strong words, this wasn’t something to take a stand on. California represents almost 30% of EV sales in the U.S., so the EV market in the state is sufficiently robust to survive and grow without incentives. Continuing to bolster it by replacing a federal credit at a time when the budget is under considerable stress is a highly questionable tactic. California, to be blunt, needs revenue more than it needs additional EVs on the road.
