Thats the key. Without the subsidy its more expensive and less efficient than carbon based fuel. In the long run we are worse off, because the subsidy can't last forever.
If markets actually worked for long-term decisionmaking and were therefore capable of pricing in negative externalities, then factoring in the cost of causing Earth to asymptotically approach Venus would change this calculus.
That doesn't seem to be the full picture.
1) The most recent FY 2025 budget (https://www.caltrain.com/media/30699/) has fuel and lubricant expenditures expected to be $5 million. With electricity expenditure estimates dropping to $16.5 million, that puts total expenditures at $21.5 million. The diesel expenditures remain because the long San Jose <> Gilroy corridor isn't electrified and requires diesel locomotive service. Contrast this against FY 2023 expenditures of $17.5 million. That's almost a 25% increase in movement power expenditures.
2) There is increased service now. About ~120 trains run on the latest weekday service timetable (https://www.caltrain.com/media/34716), and 8 of them are diesel service between San Jose and Gilroy. Compare this to ~90 trains for weekday service in 2023 (https://www.caltrain.com/media/30027/download?inline), of which 6 are diesel service between San Jose and Gilroy. Conservatively, we have a 25% increase in service.
3) The new trains are faster. Hitting every stop between San Jose and San Francisco is 101 minutes on diesel and 83 minutes on electric.
So we get an increase in movement power costs proportional to the increase in service, all while having faster trains. I think it's a fair trade.
The subsidies are just gravy on top for a job well done.
EDIT: fixed 2023 weekday service link
With further investment in energy storage it sounds like they could nearly cover a lost subsidy.
Moreover, the improved service from electric (faster acceleration and better air quality) seem very worthwhile.
Also, worth noting in the event the conclusions are extrapolated to diesel over the road transportation: train diesel is much less expensive as it's exempt from fuel (state and federal) taxes.
You're making the classic error here of not factoring the externalities involved - the pollution and other issues from fossil fuels. If they were actually being paid for then electricity would be much cheaper. Fossil fuels get a defacto subsidy by being able to pollute the environment without any cost.