Trump may end the $7,500 EV tax credit. Elon Musk and Tesla would reap the rewards

New York – The $7,500 tax credit for electric vehicle (EV) buyers could be removed under the Trump administration. While this may sound like bad news for EV buyers, it might actually be a positive development for Tesla and its CEO, Elon Musk, a strong supporter of President-elect Donald Trump.

The tax credit helps make electric vehicles more affordable for buyers, giving EVs a better chance to compete with traditional gasoline-powered cars. When a similar tax credit expired in the past, Tesla had to cut the prices of its vehicles by about half to compensate for the loss of the incentive.

Currently, Tesla is the only automaker making a profit from EV sales in the U.S. The company is the world’s largest producer of electric cars. In contrast, automakers like General Motors and Ford are still losing money on each electric car they sell. Even though Tesla faced losses when it first started selling EVs, it is now one of the most profitable car companies in the world.

If the tax credit is removed, the price of EVs could go down. However, this would mainly hurt traditional automakers more than Tesla, which could see its profits slightly decrease, but still remain in a strong position. Some established automakers may even cut back on EV production, reducing competition for Tesla in the EV market.

To stay competitive, Tesla has used its profitability to lower the prices of its vehicles, even while still benefiting from the tax credit. Musk has publicly supported the removal of the EV tax credit, saying it would benefit Tesla. In July, he tweeted, “Remove the subsidies; it will only benefit Tesla.”

Most other automakers, however, want the tax credit to remain in place. The Alliance for Automotive Innovation, a group representing all major international automakers except Tesla, urged Congress to keep the credit, saying it helps U.S. manufacturers compete with Chinese EV makers. Global automakers have invested billions to shift from gasoline cars to electric vehicles.

Tesla’s sales have recently fallen, as more traditional carmakers have introduced their own EV models. Chinese EV companies are also becoming more competitive, especially in the Chinese and European markets. For the first time, Tesla has reported a decline in sales for an extended period, with its sales for the first nine months of this year falling below those from the same period in 2023.

Musk has been a major financial supporter of Trump, donating $119 million to a political action committee backing Trump’s campaign. Despite some drops in Tesla’s stock value, Musk’s net worth is still estimated at $307 billion.

Ending the Tax Credit

During his campaign, Trump promised to eliminate what he called President Joe Biden’s “EV mandate,” though no such mandate exists in federal law. Biden’s Inflation Reduction Act restored the $7,500 tax credit for many EV purchases and also provided loans to automakers for building EV and battery plants.

Reuters reported that Trump’s team plans to eliminate the tax credit as part of a broader tax reform. Tesla has expressed support for this move. Shares of Tesla and other automakers dropped after the news, but some analysts believe removing the tax credit could benefit Tesla.

Garrett Nelson, an analyst at CFRA Research, wrote that losing the credit would make it even harder for competitors to profit from EV sales, giving Tesla an even bigger advantage. He raised his rating for Tesla stock from “hold” to “buy” and increased his price target for the stock.

Dan Ives, a tech analyst at Wedbush Securities, agreed, saying that while the loss of the credit may reduce U.S. demand for EVs slightly, it would help Tesla maintain its lead over other automakers. He emphasized that Tesla’s pricing and production scale are unmatched by other companies, especially once the tax credit is gone.