Shares of electric vehicle (EV) and related stocks Lucid Motors (NASDAQ: LCID), QuantumScape (NYSE: QS), and Navitas Semiconductor Corporation (NASDAQ: NVTS) rallied today, up 3.3%, 3.7%, and 14.9%, respectively, in Monday’s trading.
The commonality among all three stocks is their leverage to the EV and clean energy markets. Such stocks have taken a pounding this year, at first because of the big slowdown in EV sales amid higher interest rates. And these stocks took another severe downturn recently after the election of Donald Trump.
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But with these stocks now trading at severely depressed levels, any positive news was likely to spark a relief rally. And the EV sector got some of that very relief today.
It had been feared by many investors in the EV and renewable energy space that incentives for clean energy under the Biden administration’s Inflation Reduction Act would be repealed by the incoming Trump administration. Notably, a repeal of the federal tax credit for EV purchases could lead to a 30% decline in EV sales, according to a recent paper led by researchers at UC Berkeley.
But today, California Governor Gavin Newsom announced that the state would make up the federal EV tax credit, which goes up to $7,500 per purchase, if that federal tax credit is repealed. According to Newsom, the money could come from California’s Greenhouse Gas Reduction Fund. That’s paid for by polluters under the state’s cap-and-trade program.
Interestingly, Newsom is proposing market-share restrictions on the potential new state tax credit, which would likely cut Tesla (NASDAQ: TSLA) out of qualifying. Although Tesla’s market share has been declining in California, it still accounted for 54.5% of all new EV registrations in the state this year, down from 63% in 2023.
The proposal smells of a potential reprisal toward Elon Musk, who has been involved in several public fights with Newsom over the past few years and who was a big donor to President Trump. For its part, the governor’s office merely said the restriction was about “creating the market conditions for more of these car makers to take root.”
A Tesla exclusion has the potential to disproportionately benefit Lucid, which makes high-end EVs that compete with Tesla’s Model S and X vehicles. Lucid has been making some progress with its high-end Air sedans and recently launched its Gravity SUV. However, Lucid’s sales are still far below its expenses, with massive losses accumulating. In October, Lucid diluted its shareholders again, selling over 600 million shares to Saudi Public Investment Fund (PIF) even with the stock at multiyear lows. So, it could certainly use California’s help.
