Trump’s “big and beautiful bill” aims to reduce EV tax credits
President Donald Trump’s tax bill includes measures to kill the Obama-era electric vehicle tax credit.
Billionaire Elon Musk is fighting to ensure federal tax incentives for electric vehicles (EVs), a key subsidy that makes EVs more affordable. President Donald Trump’s new bill is trying to eliminate these tax incentives.
Tesla, a mask company (NASDAQ: TSLA) We have already seen sales struggles to grow in many major regions. Deliveries last quarter fell 32% in the quarter and 13% year-on-year. Will EV Tax Credit Elimination be a fatal blow to a struggling automaker? You may be surprised by the answer.
Is Tesla struggling financially?
When it comes to potential regulations, the first thing investors need to consider when it comes to “killing” operating businesses like Tesla is their impact on sales growth. Already, demand growth has stagnated for Tesla. And while the company has teased new potential revenue streams like the Robotaxi venture, there are not many visibility milestones that can make a significant profit over the next year or two. Analysts expect the company to update its existing lineup, but there is little detail about releasing a new model in 2025 or 2026. Even if a new model is released, it is unlikely that production will expand meaningfully over the next 12-24 months.
Will Tesla be unveiling a new model soon?
With this, where will Tesla remain in the near future? In the same position, today they are trying to stimulate demand for an increasingly outdated lineup. Make the company’s vehicles more expensive than $4,000 to $7,500 — the range of federal incentives Trump proposes to eliminate could ultimately drive Tesla’s decline in sales. On the other hand, if potential demand increases from releasing a more affordable model model Y or Model 3, it could be completely offset by the elimination of tax credits, minimizing net customer savings. In return, Tesla may need to squeeze its profit margins to keep demand growth on track.
Does Tesla have a lot of cash on hand?
Fortunately, Tesla has the capital to withstand a multi-year stagnation in sales growth. More than all other competitors, the book has $16 billion in cash equivalents. That profit margin is also positive – something unusual in the EV world – meaning you can afford to cut your profits a little without entering the red. However, it must be noted that Tesla also relies on selling vehicle regulatory credits acquired through the sale of carbon-free vehicles to maintain profitability. The company won $595 million last quarter by selling these credits net profits of $409 million. However, most of this “free” income from credit sales comes from states like California and New York and comes from EU incentive programs, so if federal incentives in the US change, they are unlikely to be reduced.
Still, Tesla’s biggest advantage is its market capitalization of $1 trillion. Tesla can easily double the cash level on its balance sheet while diluting shareholders by just 1% to 2%. This makes it rare for the company to go straight to anytime. In fact, elimination of the EV tax credit could be a secret victory for Tesla.
Eliminating the EV tax credit could actually help Tesla
Many investors may be surprised to learn that ExxonMobil wants to implement a carbon tax. Carbon tax makes its output more expensive for buyers and potentially limits demand. However, if production costs rise, many smaller competitors may not be able to compete, leaving more markets for capitalized giants like Exxon.
The same may apply to Tesla. Most of its EV competition comes from unprofitable companies with minimal space for errors like Libian and clear groups. These EV makers are about 99% smaller than Tesla and have limited ability to tap the market for more capital. The elimination of the EV tax credit would hurt them more than Tesla, potentially leaving a longer-term market share for Musk and his investors.
Of course, immediate effects will be negative for Tesla and other industries. However, it must be emphasized that the bill is not a law. The EV tax credit could be in effect until 2032, as in previous plans. However, the elimination of these subsidies certainly does not “kill” Tesla. In fact, there is a debate that the reduced competition could potentially be a long-term benefit.
Ryan Vanzo has no position in any of the stocks mentioned. Motley Fools have a job at Tesla and recommend it. Motley Fools have a disclosure policy.
The Motley Fool is a partner at USA Today, providing financial news, analysis and commentary designed to help people control their financial lives. The content is produced independently of USA Today.
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