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No sector feared Donald Trump’s return to the White House more than green energy. Solar and electric vehicle (EV) shares have been sliding ever since Trump was selected as the 47th U.S. president. Tesla (TSLA), of course, is a notable exception here, as the Elon Musk-run company jumped back into the league of trillion-dollar companies a few days after the election results.
However, even TSLA stock has since pared its gains, and even fell out of the trillion-dollar club yesterday amid a broad-based sell-off in EV stocks on reports that Trump plans to nix the $7,500 EV tax credit. Incidentally, while the credit was in place during Trump’s first tenure as well, the Biden administration redefined the tariffs, which made Tesla and General Motors (GM) vehicles also eligible.
Biden Expanded the EV Tax Credit
Both Tesla and GM had previously crossed the maximum threshold of EV shipments, and so their vehicles had stopped qualifying for the EV tax credit. However, Biden’s Inflation Reduction Act mandated that vehicles be assembled in North America, and imposed sourcing requirements for batteries and critical minerals, for them to be eligible for the EV tax credit.
Meanwhile, with Trump’s transition team reportedly considering eliminating these EV tax credits, which helped lower the cost of buying an electric car and thereby increased their adoption, EV stocks are now feeling the heat.
Even Tesla stock, whose CEO has backed ending all subsidies, fell on prospects of EV tax credits being killed under the Trump administration.
There is Already an EV Price War
There is already a vicious EV price war in the U.S. and China, as companies have slashed prices to spur sales. Companies poured billions of dollars into new EV plans anticipating strong demand. However, while EV sales are still growing, they are nowhere near the kind of demand that automotive companies anticipated.
This especially holds true for the U.S. - which is ironically home to Tesla, the world’s largest seller of battery electric vehicles (BEVs). U.S. EV penetration levels are still in the single digits and are way below Europe. Incidentally, in China, sales of new energy vehicles (NEVs) have been pretty strong, and every second car sold in the country is now either a BEV or hybrid.
The U.S. EV Price War Might Escalate Further
The EV price war in the U.S. might escalate further if Trump ends the EV tax credit. While legacy automakers scaled back their once-ambitious EV plans, a flurry of new models is expected in 2025 and beyond. These include the Chevy Bolt, which is a mass market model. Ford (F) is also working on a low-cost platform, which would have helped the company expand its market share.
Doing away with the EV tax credit will make electric cars costlier to buy. With the average U.S. consumer trading down even in groceries, many fence-sitters might drop plans to buy an electric car without the EV tax credit.
To be sure, even Musk admitted that ending EV tax credits would be negative for Tesla, but he believes that doing so will “devastate” his company's competitors. Separately, Musk along with Vivek Ramaswamy heads the newly formed Department of Government Efficiency (DOGE), a commission tasked with advising the president on cutting down what Trump called “wasteful spending.” Given Trump’s stated goal of ending the “EV mandate” on the first day of his presidency, the EV tax credit might well get the axe.
Moreover, Tesla has been quite clear that it will prioritize shipment growth over margins. The company intends to make up for lower margins by selling software subscriptions in the future – a privilege not many other EV producers have.
Tesla Can Withstand the EV Price War Better Than Its Peers
Tesla has positioned itself as more of a software play, with features like autonomous driving and futuristic products like Optimus humanoid. Notably, the reason Tesla stock soared following Trump’s election was not because markets expected the company’s cars to fly off the shelf under his presidency, but because of expectations of more favorable regulations around autonomous cars, robotaxis, and artificial intelligence (AI).
Tesla also happens to be the rare breed of EV companies that are churning out profits. The company has the financial strength to withstand the EV price war much better than not only rival startups, but also legacy automakers who are saddled with massive losses in their EV business.
Ford, for instance, expects to lose around $5 billion this year in its EV segment. General Motors is also losing billions of dollars in its EV segment, and while the company said that its 2025 EV losses would fall by between $2 billion-$4 billion, the nixing of the EV tax credit might complicate the picture.
Overall, with more new models lined up in the EV space and still-tepid demand for electric cars, it would be fair to expect the EV price war to worsen in the case that Trump does kill the EV tax credit.
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