Trump’s EV Tax Credit Rollback: Potential Impacts on Tesla and the Auto Industry

Mesbahi acknowledged that in the short to medium term, Tesla's profit margins would likely take a significant hit if the tax credit were to be removed. However, Mesbahi highlighted several reasons why...
Trump’s EV Tax Credit Rollback: Potential Impacts on Tesla and the Auto Industry
Written by Rich Ord
  • In a recent statement, former President Donald Trump announced his plan to eliminate the electric vehicle (EV) tax credit on his first day back in office, claiming it would save the U.S. auto industry from “complete obliteration.” The proposed rollback of the $7,500 EV tax credit has sparked significant debate, particularly among automakers and industry experts. One of the prominent voices in this conversation is Farzad Mesbahi, a YouTuber and Tesla expert, who shared his thoughts on the implications of such a move on the social media platform X.

    Short to Medium Term Impact on Tesla

    Mesbahi acknowledged that in the short to medium term, Tesla’s profit margins would likely take a significant hit if the tax credit were to be removed. “If Trump were to roll back the $7.5k EV tax credit, Tesla’s margins will take a significant hit and/or there will be significantly less sales on existing models,” he tweeted. This reduction in margins or sales could pose challenges for Tesla, which has benefited substantially from these credits to boost its vehicle sales.

    However, Mesbahi highlighted several reasons why Tesla is better positioned than other automakers to absorb the impact of losing the EV tax credit. Firstly, Tesla remains the only automaker that is profitable outside of China, giving it a financial cushion that many of its competitors lack.

    Future Growth Prospects

    Mesbahi pointed to Tesla’s future product lineup as a crucial factor in its resilience. The company is set to launch a new, more affordable vehicle platform in 2025, with prices starting between $25,000 and $30,000. “Tesla has a new, more affordable vehicle platform coming out in 2025 that will start somewhere around $25k to $30k,” he noted, suggesting that this could attract a broader customer base and mitigate the loss of the tax credit.

    Additionally, Tesla’s Full Self-Driving (FSD) technology is gaining traction, with increasing adoption rates due to continuous improvements. Since FSD is a software feature, it significantly boosts Tesla’s profitability as the revenue flows directly to the bottom line. “Tesla’s FSD is beginning to be adopted at a higher rate due to improvements, and with it being a software update, profit flows to the bottom line,” Mesbahi explained.

    Diversification into Energy and Robotaxis

    Tesla’s energy division is another area where the company is ramping up its efforts. Mesbahi pointed out that the division has doubled its sales compared to the previous year. This diversification into energy solutions could provide a buffer against fluctuations in the automotive market. “Tesla’s energy division has started to ramp in earnest, with sales like 2x vs previous year,” he added.

    Furthermore, the anticipated launch of Tesla’s Robotaxi self-driving network, which aims to compete with ride-hailing giants Uber and Lyft, represents another significant growth opportunity. If successful, the Robotaxi network could transform urban transportation and create a new revenue stream for Tesla.

    Comparative Advantage Over Competitors

    Mesbahi emphasized that while Tesla might see a reduction or flattening in sales due to the removal of the EV tax credit, its market share could increase. “Every other automaker will go from negative margins to further negative margins, and more importantly, manufacturers that are leveraging the EV tax credit for Hybrids will no longer be able to do so,” he explained. This would particularly impact manufacturers of hybrid vehicles who have relied on the tax credit to remain competitive.

    He also noted that other automakers would struggle to absorb the loss of the tax credit, potentially leading to a decline in their sales and market share. In contrast, Tesla’s diversified product offerings and technological advancements put it in a relatively strong position.

    Stock Market Implications

    Regarding the potential impact on Tesla’s stock price, Mesbahi suggested that it would depend on how Wall Street perceives the company’s growth prospects. Key factors include the successful ramping up of Tesla’s energy division, the full realization of FSD capabilities, the mass production of the affordable $25k-$30k compact car, and the launch of the Robotaxi network. “As far as stock price goes, it depends on how much Wall Street buys this scenario,” Mesbahi commented.

    Conclusion

    While Trump’s proposal to eliminate the EV tax credit poses significant challenges for the electric vehicle industry, Tesla appears to be in a strong position to weather the storm. With its profitability, upcoming affordable vehicle platform, advancements in FSD technology, and expansion into the energy sector, Tesla could maintain its competitive edge. However, the broader impact on the U.S. auto industry remains uncertain, and the response from other automakers will be critical in shaping the future of electric mobility in the country.

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