Nearly a year after the expiration of a $7,500 federal tax incentive for new electric vehicles, California is stepping in to try to encourage buyers to opt for electric vehicles.
Governor Gavin Newsom allocated $135 million in his new state budget to provide incentives for new and used electric vehicles. Participating automakers will match funds.
California leads the nation in electric vehicle adoption, although the market has taken a hit under the Trump administration.
The state budget, a more than $350 billion spending plan, took effect Wednesday. The electric vehicle incentives will go into effect in the coming weeks as the California Air Resources Board finalizes agreements with dealers.
Here's what you need to know.
How much are the incentives worth?
Senate Bill 168 tasked the California Air Resources Board with setting incentive amounts for new and used electric vehicles sold in California.
Eligible buyers will receive $3,500 off new electric vehicles and $1,750 off used vehicles. Unlike federal tax credits that expired in September, these incentives offer an instant discount and do not require buyers to apply for the credit later.
State funds will cover half of the incentive amount and automakers will cover the other half.
The refunds will mean that most eligible buyers will effectively get between 4% and 7% of their money back.
For used electric vehicles, “this incentive helps turn what is already a good deal into an even better business,” said automotive analyst Brian Moody. “I think that's the perfect use of these types of dollars.”
What are the rules and exceptions?
The new incentives cannot be used on all electric vehicles: They apply only to new electric vehicles with a manufacturer's suggested retail price of $50,000 or less, and to used electric vehicles with a sales price of $25,000 or less.
The $50,000 maximum rules out many options on the market, but the legislation outlining the incentive program makes a special exception for California-based companies. Buyers who purchase a new or used electric vehicle from a California-based company can claim the discount regardless of the price of the vehicle.
That's good news for Newark, California-based Lucid and Irvine-based Rivian. Neither company currently offers new vehicles for less than $50,000. Rivian said it plans to launch a $44,990 SUV in 2027.
Who is eligible?
California's new electric vehicle discounts are available only to first-time electric vehicle buyers, according to the legislation.
SB 168 says the buyer's eligibility will be “confirmed by a certification from the buyer” that he or she has not previously owned a zero-emission vehicle.
The new electric vehicle incentive is less than half of the federal incentive that expired nine months ago. While the federal incentive may have been enough to spark interest in a variety of buyers, Moody said the smaller amount will likely primarily appeal to people who already have their eye on an electric vehicle.
“I think you have to already be considering it, or in the market,” Moody said. “I think the amount is right for that.”
What are California's clean car goals?
The incentives are intended to help California meet its electric vehicle and air quality goals, as those goals have come under fire from President Trump.
Shortly after taking office, Trump signed an executive order that revoked California's authority to set its own electric vehicle regulations, which included a goal for 100% of new vehicle sales in the state to be zero emissions by 2035.
California sued the administration in response. The state also has goals, including some that have been in place since 2012, that set lower and lower limits for smog-causing pollutants and require automakers to sell increasing percentages of electric and hybrid vehicles through 2025.
In March, the administration again filed a new lawsuit trying to block California's ability to set auto emissions standards stricter than federal ones.
Earlier this year, California announced that more than 2.5 million zero-emission vehicles had been sold in the state since 2010, exceeding the goal of putting 1.5 million zero-emission vehicles on the road by 2025.
