Investment veteran Gary Black cautions that Tesla Inc TSLA will lose the most if the $7,500 federal electric vehicle tax credit is eliminated, citing the company’s overwhelming dependence on EV sales compared to traditional automakers.
What Happened: Black, managing partner at The Future Fund LLC, points to Tesla’s recent history of price-related challenges as evidence for his concern. “Tesla’s earnings power declined by 45% and shares fell by 70% in 15 months” following price cuts of 15-20% in late 2022 and 2023, he noted on social media platform X.
The potential loss of the tax credit could effectively increase Tesla’s U.S. vehicle prices by 20%, affecting approximately 30% of the company’s global sales volume. Black emphasizes that Tesla’s vulnerability stems from its business model, where electric vehicles represent about 80% of revenue.
“No one else has anywhere near that degree of exposure to EVs,” Black wrote, contrasting Tesla’s position with traditional automakers. He dismisses concerns about the impact on legacy manufacturers, noting that companies like General Motors Co GM and Toyota Motor Corp TM saw earnings growth during Tesla’s recent downturn.
Black’s analysis challenges some Tesla supporters who suggest the credit’s removal would primarily hurt traditional automakers. He argues that mathematical analysis doesn’t support this view, pointing out that EVs typically constitute only 5-10% of legacy automakers’ business.
“Why would raising price on 5-10% of legacy auto's business bankrupt them? C'mon folks – please do the math,” Black wrote.
See Also: Warren Buffett’s Berkshire Hathaway Slashes Apple, BofA Holdings, Adds Domino’s Pizza In Q3
Why It Matters: The potential elimination of the $7,500 EV tax credit has been a topic of concern for Tesla and the EV industry as a whole. Despite the negative implications, some analysts believe that this move could be beneficial for Tesla.
Meanwhile, Tesla’s stock has been on the rise since the 2024 presidential election, with Elon Musk‘s endorsement of President-elect Donald Trump being seen as a significant factor in this growth.
Furthermore, the recent announcement of Musk as the co-lead for the Department of Government Efficiency (DOGE) has been met with mixed reactions from analysts, with Black suggesting that this appointment may not have a significant impact on Tesla’s stock.
Price Action: Tesla stock closed at $311.18 on Thursday, down 5.77% for the day. In after-hours trading, Tesla slipped a further 1.15%. Despite recent drops, Tesla’s stock has gained 25.26% year to date, according to data from Benzinga Pro.
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Image via Tesla
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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