Trump has once again received big news.
Last night, Tesla's stock price closed down nearly 6% at $311.18 per share; The stock price of Rivian, a smaller electric vehicle competitor, fell sharply by over 14% to $10.31 per share at the close. Lucid fell 5% to $2.08 per share.
According to Reuters, two insiders revealed that President elect Trump's transition team plans to cancel the $7500 consumer tax credit for purchasing electric vehicles as part of a broader tax reform bill. Tesla has also expressed to the Trump transition committee that they support terminating subsidies.
Is it about to be cancelled?
According to reports, President elect Trump's transition team plans to cancel the $7500 consumer tax credit for purchasing electric vehicles as part of a broader tax reform bill. The cancellation of tax credits may have a serious impact on the already stagnant transformation of electric vehicles in the United States. But two anonymous sources from Tesla said that Tesla has expressed to the Trump transition committee that they support terminating subsidies.
Tesla CEO Elon Musk is one of Trump's biggest supporters and also the world's richest man. He stated in July that canceling subsidies may have a slight impact on Tesla's sales, but it would be "devastating" for its American electric vehicle competitors, including traditional car manufacturers such as General Motors (GM. N).
Two sources said that canceling subsidies is a landmark measure of Democratic President Biden's Inflation Reduction Act (IRA), and the energy policy transition team led by billionaire oil tycoon and founder of Continental Resources, Harold Hamm, and Republican North Dakota Governor Doug Bergem is holding a meeting to discuss the issue.
Since Trump won this election, the group has held multiple meetings, including at his Mar-a-Lago estate club in Florida, where Musk has also spent a considerable amount of time since the election. Representatives from Tesla and Ford have not yet responded to requests for comment. General Motors and Stellantis declined to comment.
During his campaign, Trump claimed to end Biden's "electric vehicle mandate," but did not provide specific targeted policies. According to sources, the transition team focused on energy believes that some of Biden's clean energy policies are difficult to end because they are popular and have already sent funds to Republican majority states.
How significant is the impact?
The Automotive Innovation Alliance urged Congress to retain the electric vehicle tax credit in a letter dated October 15th, stating that it is "crucial for consolidating America's future global leadership in the automotive manufacturing industry.
Two sources said that Trump can use the cost savings from canceling tax credits to help pay for the extension of trillions of dollars in tax cuts that are about to expire during his first term. Congressional Republicans plan to include a broader tax bill as one of their first actions.
Members of the energy transition team expect that the Republican controlled Congress will deploy a legislative measure called "reconciliation" to avoid relying on Democratic votes.
The cancellation of the electric vehicle tax credit has received widespread support from Trump's longtime supporter Ham and the oil and gas industry. During the campaign, Trump promised to increase US oil production (although it has reached a historic high) and revoke Biden's clean energy plan, which also includes subsidies for large-scale production of wind, solar, and hydrogen.
Historically, Tesla has been the biggest beneficiary of consumer subsidies for electric vehicles passed by Biden and previous administrations. But now canceling the subsidy policy may benefit Tesla, as it could cause greater harm to emerging electric vehicle competitors than Tesla. Musk himself also pointed out this during the July earnings conference call, stating that losing subsidies during the Trump administration "may benefit Tesla in the long run.
According to Cox Automotive, Tesla's electric vehicle sales in the third quarter were slightly less than half of its US electric vehicle sales. Other car manufacturers with significant sales of electric vehicles, such as General Motors, Ford, and Hyundai, are far behind. But Tesla's competitors in the US electric vehicle industry are steadily eroding its market share overall, with Tesla's market share exceeding 80% in the first quarter of 2020.
Nicholas Mersch, portfolio manager of Tesla investor Purpose Investments, stated that Tesla can withstand the potential sales impact of losing subsidies because the automaker's "engineering and manufacturing capabilities" have reduced its costs. Merck said, "Cancelling subsidies means that competitors cannot catch up and compete on costs
Mike Murphy is a longtime Republican strategist who manages the "Electric Vehicle Politics Project," an advocacy group seeking bipartisan support for electric vehicles. He describes the termination of subsidies as a policy of "Tesla first, everyone else second.
Automakers in the US market have been preparing for changes in car policies during the Trump administration. Some car manufacturers may offer greater flexibility to produce more fuel powered SUVs and trucks, which will bring huge profits to the Detroit Big Three (General Motors, Ford, and Jeep parent company Stellantis). But other changes, such as losing the electric vehicle tax credit, may weaken their initial efforts to transition to electric vehicles.
Losing subsidies for electric vehicles will make it harder for Tesla's struggling competitors to make profits from these cars. General Motors, Ford, Hyundai and other companies are still increasing their production of electric vehicles and striving to reduce manufacturing costs. Ford expects its electric vehicle and software businesses to lose $5 billion this year, after relying on electric vehicle tax credits to stimulate demand from price sensitive consumers. However, even with these credits, demand for the Ford F-150 Lightning electric pickup truck remains sluggish, forcing Ford to suspend production of this truck until the end of the year.
The United Auto Workers (UAW), representing workers from the Detroit Big Three (but not Tesla), supports Biden's electric vehicle policy, including a $7500 reward. Last month, UAW President Shawn Fain fiercely criticized Trump's threat to repeal these policies, stating that "hundreds of thousands" of jobs in the automotive industry are at risk.