California Won’t Replace Expiring $7,500 Federal EV Tax Credit

In a reversal that underscores California’s mounting fiscal pressures, Governor Gavin Newsom announced on September 19, 2025, that the state will not backfill the $7,500 federal tax credit for electric vehicle (EV) buyers, which is slated to expire at the end of this month.

This decision comes despite Newsom’s earlier pledge to restart California’s Clean Vehicle Rebate Program (CVRP) if the federal incentive—enacted under the Inflation Reduction Act—was eliminated by the incoming Trump administration.

Newsom described the federal expiration as “federal vandalism,” but emphasized that California simply cannot afford to compensate for the loss, opting instead to prioritize investments in EV charging infrastructure.

This about-face highlights broader economic strains tied to Newsom’s ambitious Net Zero policies, which have contributed to high unemployment, soaring energy prices, and a challenging business environment in the Golden State.

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Newsom’s Broken Promise and Budget Realities

Back in November 2024, as President-elect Donald Trump signaled his intent to dismantle federal EV subsidies, Newsom positioned California as a bulwark against such moves. He committed to reviving the state’s rebate program, which had provided up to $7,500 for EV purchases from 2010 to 2023 before being phased out due to funding shortfalls.

“If Trump kills the federal EV tax credit, then California will replace it for its residents,” Newsom declared at the time, framing it as a stand against national policy shifts.

Environmental groups like Plug In America applauded the move, seeing it as a way to sustain momentum toward California’s goal of 100% zero-emission vehicle sales by 2035.

However, less than a year later, with the federal credit’s expiration imminent—set for September 30, 2025—Newsom has backed away from that commitment.

The governor’s office cited the inability to “make up for” the federal loss, a veiled reference to California’s deepening budget woes. The state faces a projected $68 billion deficit for the 2025-2026 fiscal year, exacerbated by sluggish revenue growth and escalating costs from climate-related initiatives.

Critics argue this is emblematic of Newsom’s pattern of overpromising on green agendas without securing sustainable funding, leaving taxpayers and industries in the lurch.

The Broader Toll of Net Zero Policies on California’s Economy

Newsom’s Net Zero push, aiming for carbon neutrality by 2045, has been hailed as a global model but has come at a steep economic cost. The policies—including aggressive emissions caps, renewable energy mandates, and phase-outs of fossil fuels—have driven up operational expenses across sectors, contributing to California’s status as having the nation’s highest unemployment rate at 5.5% as of August 2025.

This rate, unchanged from July, places California dead last among states, reflecting job losses in traditional industries like oil and agriculture, which have been targeted by stringent regulations.

Energy prices tell a similar story. California’s residential electricity rates averaged 35.03 cents per kilowatt-hour in September 2025, the highest in the contiguous U.S. and more than double the national average.

Households now spend about $286 monthly on electricity, 12% above the national figure, fueling public frustration and contributing to a broader cost-of-living crisis.

Gasoline prices remain 45% higher than the U.S. average, with recent legislation signed by Newsom aiming to stabilize them but risking further spikes if refineries close under environmental pressures.

These burdens stem directly from Net Zero mandates. In Kern County, a hub for oil production, state actions have included denying drilling permits, imposing hefty fines, and enforcing regulations that cripple operations, leading to economic distress and business exodus.

Billions in subsidies for renewables have shifted resources away from affordable energy sources, while lawsuits and bureaucratic hurdles have slowed infrastructure development. As a result, companies are fleeing: Major firms cite high regulatory costs and energy bills as reasons for relocating to states like Texas. Newsom’s administration has responded by relaxing some rules, such as easing oil drilling and environmental reviews under the California Environmental Quality Act (CEQA), but critics say these tweaks are too little, too late, amid growing economic worries post-national elections.

Ramifications for EV Manufacturers in California

The decision not to replace the federal credit spells trouble for EV manufacturers operating in California, a market that accounts for nearly 12% of U.S. auto sales and sets trends for 11 other states.

Without incentives, EV sales could slump, as these vehicles remain $5,000 to $10,000 pricier than gasoline counterparts, compounded by high depreciation, insurance, and charging costs.

The California Air Resources Board (CARB) had urged state rebates to cushion the blow, but past programs ran dry, leaving buyers in limbo.

Tesla, with its massive Fremont factory employing thousands, stands to lose the most. The company dominates California’s EV market, capturing over half of sales last quarter, but the lack of subsidies could erode demand and force price cuts or production shifts.

Earlier proposals under Newsom even floated excluding Tesla from state credits, citing its non-union status—a move Elon Musk called “insane” given Tesla’s role as the only major EV maker based in California.

Other manufacturers like Rivian and Lucid, with California ties, face similar pressures, potentially leading to layoffs or relocations. Automakers may need to sell EVs at a loss to meet state ZEV mandates, while credit-trading schemes could benefit those with strong EV portfolios but punish laggards.

Equity issues loom large: Subsidies have disproportionately benefited higher-income buyers, raising questions about taxpayer-funded perks for unaffordable vehicles.

As EV adoption slows, California’s 2035 gas-car ban could become even harder to enforce, straining manufacturers further.In sum, Newsom’s retreat on EV subsidies amid fiscal strain exemplifies how Net Zero ambitions are clashing with economic realities. While the state pivots to infrastructure, the fallout—higher costs, job losses, and industry challenges—may accelerate California’s brain drain and question the viability of its green agenda.

 

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