On Thursday, November 14th Eastern Time, according to two informed sources, the transition team of US President elect Donald Trump plans to cancel the $7500 tax credit that consumers can receive when purchasing electric vehicles. In the long run, global electric vehicle leader Tesla (TSLA) will benefit from it.
Affected by this news, electric vehicle stocks collectively fell sharply, with Nikola closing down 22.76%, Jike ADR closing down 23.68%, "Tesla's arch rival" Rivian closing down 14.3%, and Tesla closing down 5.77%. This indicates market concerns about this policy change, fearing that the cancellation of subsidies will slow down the popularity of electric vehicles and industry development.
Tesla supports canceling subsidies
This preferential subsidy is one of the core measures of President Biden's Inflation Reduction Act (IRA), aimed at encouraging consumers to purchase electric vehicles and promoting the development of clean energy. The Trump administration hopes to save money by canceling electric vehicle tax subsidies to pay for trillions of dollars in tax cuts that are about to expire.
Trump had promised before the election that even if the US oil production had reached a historic high, he would still push for an increase in US oil production and revoke President Biden's expensive clean energy plans. These policies not only include tax subsidies for electric vehicles, but also subsidies for wind and solar energy, as well as support for large-scale production of hydrogen energy.
Trump's plan to terminate tram subsidies may be a good thing for Tesla, as it will cause greater losses to its competitors. According to insiders, as the world's largest electric vehicle manufacturer, Tesla has told Trump's transition team that they support canceling subsidies. Musk stated earlier this year that canceling subsidies may have a slight impact on Tesla's sales, but would have a devastating blow to competitors, including traditional car companies such as General Motors.
In fact, Tesla has never been the biggest beneficiary of this subsidy. Compared to Tesla, which sells cars directly, this subsidy is more advantageous for other car manufacturers who enjoy tax benefits through "leasing loopholes".
With subsidies, there will be manufacturers exploiting loopholes
In the United States, most cars purchased directly by consumers do not qualify for full subsidies because many of their components or materials come from overseas, but rental cars do not have these requirements and consumers can enjoy subsidies through leasing.
This has also led to a surge in electric vehicle rentals in the United States. According to statistics, nearly 60% of electric vehicles sold in the United States are long-term rentals rather than direct purchases. Tesla is an exception, as its business model tends to generate profits through direct sales rather than leasing. Tesla believes that excessive reliance on leasing models will lead to a decline in the residual value of vehicles.
On the contrary, many other car manufacturers have already considered tax incentives when pricing, and the larger the subsidy, the stronger the attractiveness of the product to consumers. Without these subsidies, car manufacturers may have to lower prices to reduce losses or face the risk of losing some customers.
Moreover, in the fierce price war, Tesla electric vehicles can still make profits, while other American car manufacturers have been losing money in the electric vehicle business, and many manufacturers rely heavily on electric vehicle subsidies to reduce losses.
Wedbush analyst Dan Ives commented, "Trump's election as president is generally negative news for the electric vehicle industry, but we believe it is a huge positive for Tesla
Since Trump's election, Tesla's market value has increased by $300 billion, surpassing the total market value of Ford, General Motors, and Stellantis.