Key Takeaways
California Governor Gavin Newsom has announced a program to use state taxpayer money to continue the subsidies Trump has promised to stop and intends to sue the federal government if it does not allow the state a waiver to force Californians to buy electric vehicles.
California leads the nation in EV sales, in part because of previous heavy state subsidies that were cut in 2023 and the mild weather which challenges EV performance less.
Governor Newsom is committed to electrifying all transportation in California rapidly, from cars and SUVs to trucks and semis, whatever the costs.
Toyota has announced that the requirement for zero-emission vehicle sales for model year 2026 in California is impossible to meet.
California Governor Gavin Newsom announced that the state plans to offer up to $7,500 in tax credits to eligible residents purchasing electric vehicles (EVs) if the Trump administration moves forward with eliminating these incentives. For President-elect Trump to revoke the EV tax credits—part of the Inflation Reduction Act (IRA) of 2022—he would need to secure Congressional approval to amend the law or pass new legislation.
Under the IRA, consumers purchasing electric, plug-in hybrid, or hydrogen fuel-cell vehicles are eligible for a tax credit of up to $7,500 for new vehicles and up to $4,000 for used ones, provided they meet certain income and vehicle qualifications. According to Kelley Blue Book, the average price of a new electric vehicle in October was $56,902, compared to $48,623 for a new gasoline car, meaning the full tax credit could help bridge that price gap.
President-elect Trump is also expected to revoke the waiver granted by the EPA that allowed California to impose stricter vehicle emissions standards than federal requirements, including a potential ban on the sale of new gasoline-powered cars by 2035. In preparation, Governor Newsom has called a special session of the California Legislature in December to discuss additional funding for legal challenges, as California anticipates suing the Trump administration, as it did more than 120 times during Trump’s first term.
If the federal EV tax credit is removed, Newsom has proposed resurrecting California’s Clean Vehicle Rebate Program, which ran from 2010 to 2023. The program initially provided up to $5,000 in rebates for battery-electric vehicles, later increasing to $7,500, and funded over 594,000 vehicles at a total cost of $1.49 billion. The state legislature would need to approve the revival of this rebate program. The new version is expected to exclude Tesla due to its dominant market share in California, with the aim of fostering competition and innovation, according to the governor’s office. Any restrictions, such as those excluding Tesla, would require legislative approval.
It remains unclear how much the new state program would cost or whether it would align with federal rules, including the $4,000 credit for used EVs and income and price limits similar to those in the IRA.
The funding is expected to come from the state’s “cap and trade” program, where companies must buy credits to emit carbon dioxide above a predetermined cap. That program has generated as much as $5 billion a year and is used to fund climate and climate-justified programs by the state. The state’s budget has been rocky with deficits that had to be covered. In the spring, California lawmakers had to close a state deficit estimated at $47 billion and California faces a $2 billion budget deficit next year.
California has led the country in the sale of electric vehicles. In 2023, electric vehicles accounted for more than 30% of auto registrations in the San Francisco Bay Area, and in Los Angeles, EV registrations were almost 25%. More than two million zero-emissions vehicles have been sold in California. Besides requiring that all new cars and light trucks sold must be zero-emissions vehicles by 2035, California mandates that half of all new heavy trucks sold in the state must be electric. California’s rules require 80% of all new vehicles sold in the state to be electric by 2035 and no more than 20% to be plug-in hybrid electric. Twelve states have adopted California rules—about half of them did so starting with the 2027 model year.
Toyota has already sounded the alarm claiming that California-led electric vehicle mandates that are set to start next year are “impossible” to meet. Current requirements under the California Air Resources Board’s “Advanced Clean Cars II” regulations call for 35% of 2026 model-year vehicles, to be zero-emission vehicles. These vehicles will begin to be introduced next year. According to CNBC, Battery-electric, fuel cell, and, to an extent, plug-in hybrid electric vehicles qualify as zero-emission under the regulations. J.D. Power reports that no states are following the EV mandate as of this year. Only California (27%), Colorado (22%), and Washington (20%) have had at least 20% of retail sales being electric vehicles or plug-in hybrid electric this year. Other states such as New York (12%), New Mexico (5%,) and Rhode Island (9%) are further from the goal. The national average of EV adoption for retail sales is only 9% through October, despite favored tax treatments and special treatments afforded EV owners by all levels of government.
Conclusion
President-elect Trump has indicated he would remove EV tax credits while campaigning. If he does so through legislative action, Governor Newsom intends to reinstate California’s zero-emission tax subsidies, which require the state legislature’s approval. Already, Toyota has announced that the requirement for zero-emission vehicle sales for model year 2026 in California is impossible to meet. Those vehicles roll off the assembly line next September—less than a year away. We will see if California consumers will comply with the requisite purchases for those automakers that can produce the required number of zero-emission vehicles.
