Shares of Tesla (NASDAQ: TSLA) slid after reports emerged that the Trump administration plans to eliminate the $7,500 electric vehicle (EV) tax credit. Furthermore, Tesla announced its sixth recall of the year for the Cybertruck due to a faulty drive inverter component.
The stock ended the day down 5.8% following the news.
Image source: Tesla.
Challenges Mount for Electric Vehicle Stocks
Tesla’s decline reflects a broader trend, as other EV manufacturers experienced significant losses as well. Rivian Automotive and Lucid Group were particularly affected, facing steeper challenges since they remain unprofitable and depend on external support for vehicle sales more than Tesla, which maintains solid profits.
According to a Reuters report released earlier today, Trump’s transition team aims to remove the $7,500 EV tax credit as a part of a more extensive tax reform plan. Notably, Tesla has indicated its support for terminating this subsidy.
Prior to this news, Tesla’s stock also faced downward pressure due to the Cybertruck recall and a general cooling off in the “Trump trade,” which had lifted shares immediately after his election, attributed in part to CEO Elon Musk’s perceived closeness to Trump. However, the long-term effects for Tesla remain uncertain.
Impact of Losing the EV Tax Credit
Musk previously noted that removing the subsidy could marginally affect Tesla’s sales, although it may have a more substantial negative impact on competitors like Rivian and Lucid.
High interest rates could also pose challenges for Tesla, as Musk has pointed out that consumers’ sensitivity to pricing makes it tough for the company to compete, especially since Tesla’s vehicles are generally more expensive than traditional gas-powered cars.
The potential loss of the EV tax credit could benefit gas-powered vehicle sellers, possibly leading to reduced sales for Tesla, as customers may opt to keep their current cars or choose legacy automakers instead. While smaller EV companies like Rivian and Lucid may feel a sharper sting, the overall effect on Tesla could still be unfavorable.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
