Economic Insight – Analysis
Elon Musk has drawn the attention of political observers, with some labeling him as President Donald Trump’s “first friend.” This burgeoning relationship comes amid the Trump administration’s plans to roll back numerous policies that support electric vehicles (EVs). Such changes have raised significant concerns among Tesla investors and analysts, who argue that these shifts could negatively impact the company’s standing as the premier manufacturer of electric cars in the United States.
Conversely, a more optimistic contingent of analysts believes that Musk’s close ties to the Trump administration could present a unique opportunity for Tesla as it pivots towards autonomous driving and robotics.
Dan Evez, a well-regarded analyst at Wedbush, stated, “Tesla’s future is anchored in self-driving technology and robots, setting it apart from traditional car manufacturers.” He further noted that Trump’s influence significantly alters the operational landscape for autonomous vehicles, highlighting a “federal road map” that is presently being developed. Evez asserted, “The true wager has always resided with Musk and Trump.”
However, not all analysts share this bullish perspective.
Self-Driving Concerns
Ross Gerber, CEO of Gerber Kawasaki, cited that his firm holds approximately 280,000 shares of Tesla, down from its peak holdings. He expressed skepticism regarding Tesla’s trajectory, claiming, “I cannot see a clear path forward for Tesla, as the self-driving technology remains unproven. I experienced significant issues with the Cybertruck’s autonomous features.” Gerber pointed out that the political controversies surrounding Musk have potentially alienated a segment of consumers. “Elon might be one of the most polarizing figures today, leading many to refrain from purchasing Tesla vehicles, which is unfortunate,” he remarked.
In tandem, the Trump administration is undertaking a review of the policies that support electric vehicle manufacturers, notably issuing an executive order on January 20 to assess and possibly eliminate government subsidies for EVs.
Impact of Tax Exemptions
Currently, Tesla models are eligible for a range of tax exemptions, surpassing offerings from other auto manufacturers. Yet, Gordon Johnson, an analyst from GLJ Research, cautioned that revoking the $7,500 tax credit could substantially elevate retail prices. “Should Trump abolish this credit, each Tesla vehicle could see a price hike of $7,500, which could be especially detrimental given that 60% of Americans struggle to cover unforeseen expenses of $600,” Johnson warned.
In fiscal terms, Tesla has garnered billions through the sale of regulatory credits to manufacturers that fail to meet emission standards. In 2024 alone, the company amassed over $2.7 billion in such credits, representing a sizeable portion of its free cash flow.
Additionally, the Trump administration has paused funding for electric vehicle charging infrastructure, potentially hindering initiatives like the National Electric Vehicle Infrastructure Program, from which Tesla has benefitted to the tune of about $31 million.
Despite these challenges, some industry insiders argue that the removal of tax incentives could inadvertently benefit Tesla by sidelining competitors unable to maintain profitability in the electric vehicle market. “Tesla is uniquely positioned to generate real profits. They have the capacity to lower prices to stimulate sales,” stated Stephen Jinjo, Managing Director at Stifel.
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