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Tesla moved headquarters from California to Texas

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Musk notes on X that Tesla makes EVs in California

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Tesla shares close down 4%

(Adds budget issue in paragraphs 8-9, afterhours trading in

paragraph 2)

By David Shepardson and Akash Sriram

Nov 25 (Reuters) - Tesla's electric vehicles

likely would not qualify for California's new state tax credits

under a proposal in the works if President-elect Donald Trump

scraps the federal tax credit for EV purchases, Governor Gavin

Newsom's office said on Monday.

Tesla shares closed down 4% to $338.59 and fell another 1.2%

in after hours trading.

Trump's transition team is considering eliminating the

federal tax credit of $7,500 for EV purchases, Reuters reported

this month.

Tesla CEO Elon Musk, a close Trump adviser, sharply

criticized the idea of barring the automaker from EV subsidies

writing on X in response "Even though Tesla is the only company

who manufactures their EVs in California! This is insane."

Musk has said he supports ending subsidies for EVs, oil and

gas.

Newsom said on Monday that if Trump eliminates a federal EV

tax credit, he will propose creating a new version of the

state's Clean Vehicle Rebate Program that ended in 2023 and

spent $1.49 billion to subsidize more than 594,000 vehicles.

"The governor's proposal for ZEV rebates, and any potential

market cap, is subject to negotiation with the legislature. Any

potential market cap would be intended to foster market

competition, innovation and to support new market entrants," his

office said.

The state faces financial headwinds. California faces a $2

billion budget deficit next year, a non-partisan legislative

estimate said last week.

EVs account for 22% of California sales - or 293,000 through

Sept. 30 - and it is unclear how much the state program would

cost and if it would include the federal $4,000 tax credit for

used EVs and impose the same limits on income and vehicle price.

California provided up to $7,500 for the purchase or lease

of a new plug-in hybrid, battery or fuel cell EV and could

potentially be paid for by the Greenhouse Gas Reduction Fund

which is funded by polluters under the state's cap-and-trade

program.

Musk and Newsom have clashed over state policies such as

shutting Tesla's Fremont factory during the pandemic and

California's approval of a bill on transgender kids.

In 2021, Tesla moved its headquarters from California to

Texas, and Musk said this year that his other companies such as

SpaceX and social media platform X will follow suit.

California has crossed the 2 million mark for sales of

zero-emission vehicles, doubling total sales since 2022.

Last month, a California official said he expects the

Environmental Protection Agency to approve the state's plan to

halt the sale of gasoline-only vehicles by 2035, a proposal that

major automakers have met with skepticism.

California's rules, which have been adopted by a dozen other

states, require 80% of all new vehicles sold in the state be

electric by 2035 and no more than 20% plug-in hybrid electric.