Tesla's shares experienced a downturn today.
Tesla's (TSLA -8.28%) shares were on a slide due to whispers from the Trump administration about axing the $7,500 electric vehicle (EV) tax incentive. adding to the gloom, Tesla announced its sixth recall this year for the Cybertruck, this time over a problematic drive inverter component.
The stock ended the day with a 5.8% drop in value.
Dive in EV stocks
Tesla wasn't the only EV stock to take a nosedive with the news. Rivian Automotive and Lucid Group felt the brunt more intensely, given their precarious financial situation and the need for immediate vehicle sales, unlike Tesla, which enjoys a healthier profit margin.
Reuters reported earlier that Trump's transition team intends to scrap the $7,500 EV tax incentive as part of a larger tax overhaul. Moreover, Tesla representatives have publicly expressed support for terminating the subsidy.
The stock also faced a setback earlier in the day due to the Cybertruck recall and the unwinding of the post-election 'Trump trade' boom. Tesla's stock surged in the days following the election, largely due to Elon Musk's ties with Trump, even though it's not fully clear how this would benefit Tesla in the long term.
Impact of losing the EV credit on Tesla
Earlier in the year, Musk had hinted that eliminating the subsidy could slightly impact Tesla's sales, though it would be more detrimental to its domestic EV rivals like Rivian and Lucid. However, Musk has also voiced concerns about the impact of high-interest rates on Tesla's business, suggesting that consumers are price-sensitive and that Tesla struggles to compete on price due to its more expensive vehicles.
In a logical scenario, scrapping the EV credit would tilt the playing field in favor of gasoline-powered vehicles, potentially leading to Tesla losing market share to established automakers or even encouraging potential EV buyers to stick with their current vehicles. Even as smaller EV companies like Rivian and Lucid might be hit harder, it's challenging to see how the loss of the tax credit would not have a negative impact on the leading EV player.
The financial implications of losing the EV tax credit could negatively impact Tesla's sales, as Elon Musk has suggested. Additionally, investing in EV stocks such as Rivian Automotive and Lucid Group may be riskier due to their reliance on the credit and the need for immediate vehicle sales.
