Why Musk supports Trump getting rid of EV tax credits
Tesla still has a commanding lead in the US EV market, but competition is slowly catching up.
Elon Musk supports a Trump plan to end tax credits of up to $7,500 for electric vehicle purchases.
That might sound confusing: Why would the CEO of Tesla want to end a program that makes it cheaper for people to buy EVs?
Well, according to Musk, it would devastate Tesla’s rivals. And Tesla wants to keep its strong lead in the US EV market, which recently slipped under 50% for the first time.
“I think it would be devastating for our competitors and for Tesla slightly,” Musk said in a July earnings call, predicting the impact of the tax credits ending. “But long term probably actually helps Tesla, would be my guess.”
On Thursday, Reuters reported that Trump plans to end the EV tax credit, with support from Tesla representatives. In a related post on X, Musk called for an “end all government subsidies, including those for EVs, oil and gas.”
Tesla has had a longer time than some of its rivals to benefit from government subsidies. Its market lead is well established, and it has led an EV pricing war that has squeezed its rivals, making it harder for them to survive if consumer demand falls even further.
Put simply: Tesla wins if ending the tax credit pressures smaller rivals enough to stall their growth or even fold.
Tesla sells more EVs than anyone else, and more profitably
In the third quarter of 2024, Tesla reported a pre-tax profit margin of 18%, well above the industry average of around 9%. Ford, the only competitor to break out its EV-specific finances, reported a -104% margin for its Model e unit.
Yet many of Tesla’s vehicles are also priced well below many competitors. The Model 3 starts at $42,490 (after a cheaper option disappeared earlier this year). That’s well below the average EV price in the US, which held steady at nearly $57,000 in October, according to Kelley Blue Book data.
In an effort to juice sales, Tesla has drastically cut prices on many of its cars over the past year, instigating an industry-wide price war that has cut into its own margin in pursuit of maintaining its industry-leading market share. Of the nearly 600,000 EVs sold in the US in the first half of 2023, half were made by Tesla. Ford, in second place, accounted for just over 7% of EVs sold in the same period.
“While losing the EV tax credit could also hurt some demand on the margins in the US, this will enable Tesla to further fend off competition from Detroit as pricing/scale/scope is an apples to oranges when compared to the rest of the auto industry once the EV tax credit disappears,” Dan Ives, a longtime bullish analyst at Wedbush, told clients in a note on Thursday.
Tesla is ahead of the curve in building a US manufacturing presence
Eliminating the consumer tax credit, part of President Joe Biden’s Inflation Reduction Act, would need congressional approval. It’s not yet clear if Trump and the incoming Republican-controlled Congress would also target other IRA tax incentives, like those supporting domestic manufacturing of cars, batteries, and other components. Competitors like BMW, Honda, and Hyundai have raced to scale up factories state-side to take advantage of those credits.
Tesla has been ahead of this curve in manufacturing, too, with six US factories churning out cars and batteries. That work has paid off, and many Tesla models are regularly named as the most “American-made” compared to competitors, many of which rely on factories in Mexico. In fact, only one other American automaker even cracked the top 10 in 2024.
Tesla CFO Vaibhav Taneja said in a July earnings call that the company has taken advantage of manufacturing credits, but “we always drive ourselves to say, OK, what if there is no IRA benefit? And how do we operate in that kind of an environment? Like Elon said, we definitely have a big advantage as compared to our competition on that front.”
In October, the Alliance for Automotive Innovation, an industry group representing Ford, GM, Honda, Toyota, and others, urged Congress to keep the tax credits.
The tax credits, including those for commercial leasing and manufacturing, are “critical to cementing the US as a global leader in the future of automotive technology and manufacturing,” they said in an October letter to Congress published by Politico.
The group, which does not include Tesla, did not respond to a request for comment.
While Musk supports cutting the EV tax credit, reports of its potential demise appear to have spooked investors. Tesla shares fell about 5% following the Reuters report, while Rivian shares fell 11%.
Musk and other Tesla leaders have long said autonomous vehicles are the future of Tesla, not just EVs, and encouraged potential investors to think much more long-term.
