- Tesla’s disappointing sales could be a wake-up call for investors.
- Trump’s proposed cuts to EV subsidies could cost Tesla $3.2 billion, JPMorgan estimates.
- Musk’s car company benefits the most from current emissions regulations.
Tesla is poised for a tough year under a second Trump administration, despite CEO Elon Musk’s friendship with the president-elect.
Following disappointing fourth-quarter sales results and a 6% dip in Tesla shares Thursday, JPMorgan is warning of more potential trouble ahead.
Based on Trump’s current proposals to remove EV tax credits and subsidies that help make Teslas more affordable, the bank’s analysts estimate that about 40% of Tesla’s profits are in danger after Trump takes office.
This risk to profitability comes as Musk’s car company is already seeing a slowdown in demand, reporting a drop in annual vehicle sales for the first time in 2024.
“Tesla does not appear to us on track to dominate the global auto industry amidst the electrification transition, which we view as only the starting point for present valuation,” analyst Ryan Brinkman wrote in a Friday morning note to clients.
Tesla sold about 1.79 million cars in 2024, it said Thursday, down slightly from last year’s record 1.8 million sales and its first-ever year-over-year decrease since becoming a major player. The results rounded out a year when Tesla finally started to feel the pinch of a larger slowdown in the EV market as consumers gravitated toward more affordable and practical hybrids.
These results slightly reversed a stunning postelection rally for Tesla’s stock price, as investors were encouraged by Musk’s proximity to the White House and his new extra-governmental commission’s work to relax autonomous vehicle regulations that currently restrict Tesla’s big robotaxi plans.
Brinkman warned that Thursday’s sales results should be investors’ wake-up call.
“The slowing of deliveries, even ahead of a likely subsidy removal, we think has the potential to refocus investors on the deterioration in deliveries, revenue, gross profit, EBIT, EPS, and FCF estimates across all periods,” Brinkman wrote, reiterating a bearish $135 price target for the stock.
Musk has insisted that removing EV subsidies would benefit Tesla, but Brinkman disagrees. He estimates that Tesla has the most to lose from shifting regulations under Trump — costing somewhere in the range of $3.2 billion — as government subsidies account for a reliable minority of Tesla’s revenue.
For years, Tesla’s regulatory credits business has provided a reliable cash flow for Musk’s car company. Essentially, Tesla makes money on the EVs its competitors don’t sell when these companies purchase Tesla’s extra regulatory credits. Additionally, Tesla’s most affordable vehicle, the Model 3, benefits from the $7,500 tax credit applied to some new EV purchases under the Inflation Reduction Act.
Tesla shares rebounded slightly Friday morning, up about 4% in morning trading.
