Ryan Vanzo, The Motley Fool
3 min read
In This Article:
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Federal tax credits for electric vehicles could soon be eliminated.
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Another critical federal program is also at risk.
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These changes would only add to the mounting problems for Tesla.
Tesla (NASDAQ: TSLA) has long been a volatile stock, but it's also become a very controversial name in recent months. Shares trade at a pricey valuation with a market cap of roughly $1 trillion, fueled by the promise of greater electric vehicle sales and a potential new robotaxi business. Yet sales growth for the company is struggling across many key geographies with CEO Elon Musk often making headlines for all the wrong reasons.
If you're monitoring Tesla stock, here are two numbers you need to be tracking.
A recent bill backed by President Donald Trump proposes eliminating tax credits for electric vehicles. These tax credits range from $4,000 to $7,500 for qualified vehicles. Right now, more than 90% of Tesla's sales come from just two models: The Model 3 and Model Y. Both qualify for federal tax credits, making them much more affordable for buyers. Surveys show that more than one-third of Tesla buyers wouldn't have purchased their vehicle without a tax credit.
Monitor what happens to these figures closely. Will federal incentives drop to $0, or will they be reduced significantly? The fate of these tax credits is very unclear right now, but their elimination would likely further dampen Tesla's sales growth in the quarters and years to come.
As troubling as the loss of the EV tax credit would be, there's another number to track that could be even more influential.
Last quarter, Tesla posted a $409 million net profit. That profit was partially realized by $595 million in automotive regulatory credits -- accrued credits that Tesla sells to competitors that need to comply with emission standards. Most of these credits are likely earned under state programs, but some are generated from federal programs. If these programs are cut, Tesla will lose a critical revenue source with nearly 100% profit margins.
With EV deliveries already declining, the loss of federal EV tax credits or automotive regulatory credits could put Tesla in an even more precarious position.
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