Political Fever Over EVs: California’s Bold Move and its Implications for Tesla

A prominent Tesla bull believes that the recent political maneuvers surrounding electric vehicles (EV) could offer a strategic advantage in this rapidly evolving market. California Governor Gavin Newsom’s strong stance against potential federal cuts to EV tax credits reveals a complex intertwining of politics and business, a chess match that could either benefit or hinder Tesla, Inc. (NASDAQ: TSLA).

Governor Newsom’s Defiance and Reintroduction of EV Rebates

On November 25, Governor Newsom announced an ambitious plan: Should President-Elect Donald Trump follow through with eliminating the federal EV tax credit, California will reactivate its former Clean Vehicle Rebate Program. This program had previously offered up to $7,500 to eligible state residents who wanted to purchase or lease an electric vehicle. In its heyday, before being phased out in 2023, the program issued over 66,000 rebates at the cost of more than $354 million and facilitated the purchase of over 594,000 vehicles, significantly contributing to environmental benefits such as the removal of more than 3.9 million metric tons of CO2e from the atmosphere.

“Consumers continue to prove the skeptics wrong – zero-emission vehicles are here to stay,” asserted Newsom. He emphasized California’s commitment to clean air and green jobs, vowing not to backtrack on a clean transportation future.

Musk’s Rejection of Political Posturing

The situation becomes more contentious as it appears that Newsom’s proposal could specifically exclude Tesla vehicles from eligibility for these rebates, a move that Musk has denounced as politically motivated. In a tweet, Musk referred to the exclusion as “insane,” stressing that Tesla is the only company manufacturing EVs in California.

The stakes are high. The EV market is substantially dominated by Tesla, which accounted for 55% of all new EV registrations in California for 2024. Any calculated political decision to exclude Tesla could have far-reaching implications, drawing Tesla’s CEO into a verbal sparring match while consumers and investors observe carefully.

Other Voices Weigh In

The political debate has drawn attention from various stakeholders, including Democratic Congressman Ro Khanna. Khanna echoed Musk’s sentiments, emphasizing the unwise choice it would be to intentionally exclude a major employer like Tesla from potential incentives.

“Let’s not play politics with keeping manufacturing in California,” he stated, drawing attention to the negative repercussions such actions could have on local employment and the overall economy. The Republican Party’s past actions toward companies like Tesla raise concerns about a repeat of miscalculations by current Democratic leadership.

Tesla Analysts Examine California’s Risky Strategy

Market analysts are not oblivious to the implications of Newsom’s decision. Dan Ives from Wedbush reiterates his “Outperform” rating and a $400 target for Tesla stock, albeit with caution about the political ramifications that may ensue. Ives characterized the proposals from Newsom’s office as a potential “Game of Thrones Battle vs. Musk,” suggesting that such a risky move could endanger many jobs in the state, perhaps even prompting a shift of Tesla operations to Texas, where the company has already begun laying the groundwork for its long-term future.

Impending Challenges: The Impact of Ending Federal EV Tax Credits

While the political back-and-forth plays out, experts warn that eliminating federal EV tax credits could lead to a significant downturn in the electric vehicle market. A report authored by esteemed economists from universities such as UC Berkeley and Stanford indicates that if such tax credits are discontinued under the forthcoming Trump administration, EV sales could plunge by a staggering 27%. Their projections estimate new registrations would drop sharply from over 1.184 million to about 867,000, subsequently removing over 317,000 EVs from American roads.

Conclusion: The Road Ahead

The discourse surrounding the EV market is emblematic of larger, more complex tensions in American politics. The allegiances formed today in the name of clean energy could transform once again as the political landscape shifts under new leadership. For investors and consumers navigating this evolving terrain, the key takeaway is clear: stay informed and vigilant, as the stakes are high, and the future of electric vehicles hangs in a precarious balance among political decision-makers.