Tesla Cut From California EV Rebate Program After Price Hikes

Tesla may be the top-selling electric vehicle brand but in California, its biggest market in the U.S., the carmaker’s products have become too expensive for customers there to receive state rebates for non-polluting cars and trucks.

The state’s Clean Vehicle Rebate Project late this month updated its list of battery-powered vehicles that qualify for direct rebates of up to $2,000, which previously included base versions of Tesla’s Model 3 sedan and Model Y hatchback, the top-selling EVs in California. But rebates are only available for cars priced up to $45,000 and crossovers that cost no more than $60,000. The program said that due to price hikes that took effect March 15, “any Tesla Model 3 or Model Y that was ordered on or after March 16, 2022, is not eligible for a CVRP rebate.”

The cheapest version of Model 3 currently costs $46,990, up from $44,990, and is more than $50,000 after taxes and other fees. Add Autopilot and the company’s controversial Full Self Driving package and the cost with taxes shoots past $60,000. A base version of Model Y starts at $62,990, excluding taxes, and exceeds $83,000 for a longer-range version with the FSD package and other options.

CEO Elon Musk cited rising prices for materials and shipping in March 13 tweets, just ahead of Tesla’s across-the-board price hikes. “Tesla & SpaceX are seeing significant recent inflation pressure in raw materials & logistics,” the billionaire entrepreneur said. “And we are not alone.”

California is by far the biggest buyer of electric vehicles in the U.S., and the state has provided incentives for non-polluting vehicles for decades. Its zero-emission vehicle credit program also generated billions of dollars in free money for Tesla throughout the company’s history, which sells credits it doesn’t need to makers of gas-powered cars and trucks struggling to comply with state pollution rules.

The price limits on new EVs, as well as annual income limits for buyers, went into effect this year to ensure that California wasn’t subsidizing purchases by wealthier customers, the core demographic for Tesla and other battery car companies. Still, the loss of the $2,000 rebate isn’t likely to curtail demand for Teslas in the Golden State where high EV demand is rising further. That’s because gasoline, spiking since Russia invaded Ukraine a month ago, now averages $5.913 per gallon, according to AAA.

Every electric model, including Tesla’s Model 3, Y, S and X, sold in California still qualifies for a separate incentive administered by the state and utilities that give EV customers a $750 rebate. (Tesla buyers stopped receiving a $7,500 federal tax credit after the company surpassed a sales volume limit for that incentive three years ago.)

Although Musk has said his goal is for Tesla to eventually sell lower-priced EVs, the company has made little progress on that front. Despite promising in 2014 that Model 3 would start at $35,000, the company couldn’t meet that target consistently and it’s unclear if any cars were ever sold at that price. Tesla remains in luxury vehicle territory, with an average transaction price of $65,837 in February, according to Kelley Blue Book. That’s 43% more than an industrywide average of $46,085 for all new vehicles.

Musk has hinted Tesla will eventually offer cheaper variants using less-expensive lithium iron phosphate batteries, instead of the lithium-ion packs that now go into its vehicles. Cars with that power system will likely appear first in China, where LFP batteries are more readily available, though Tesla hasn’t said when they might also be available in the U.S. LFP batteries are heavier and less energy-dense than lithium-ion, though they’re also less prone to overheating and igniting.