Tesla (TSLA) faces a challenging road ahead as the second Trump administration takes the helm, despite the close relationship between CEO Elon Musk and the incoming president. JPMorgan (JPM) has warned that Tesla could see significant financial strain due to proposed policy changes, particularly the removal of EV tax credits and subsidies that have made Tesla vehicles more accessible to consumers. According to BI, analysts from the bank estimate that these changes could threaten about 40% of Tesla’s profit margin.
The company’s performance in the fourth quarter of 2024 was disappointing, with Tesla reporting a slight decline in annual vehicle sales to 1.79 million cars from the previous year’s record of 1.8 million. This marked the first annual decrease since Tesla became a prominent player in the automotive market, signaling a slowdown in demand for electric vehicles (EVs) as the market shifts towards more cost-effective hybrid options.
This sales drop came after a 63% surge in Tesla’s stock price post-election, fueled by optimism about Musk’s political connections and the potential for regulatory relief concerning autonomous vehicles. However, the reality of decreased sales figures has prompted a reassessment among analysts. Ryan Brinkman, a JPMorgan analyst, issued a note to clients on Friday morning, warning that the current downturn — even before the expected removal of subsidies — should serve as a critical wake-up call for investors. He highlighted the risk of further declines in key financial metrics such as deliveries, revenue, and profit, reaffirming, as per BI’s report, his bearish $135 price target for Tesla stock.
Musk has argued that removing EV subsidies would ultimately benefit Tesla, suggesting that it would level the playing field with competitors. However, Brinkman counters this, estimating a significant financial hit of about $3.2 billion for Tesla due to the loss of these subsidies, which have been a stable revenue stream through Tesla’s regulatory-credits business. This business model allows Tesla to profit from the regulatory credits it sells to other manufacturers who fail to meet emissions standards, bolstering Tesla’s bottom line.
Despite these concerns, Tesla’s stock showed resilience, rebounding with an 8.22% increase by the end of the trading day on Friday, closing at $410.44. This rebound suggests that while the immediate outlook might be fraught with challenges, investor confidence in Tesla’s long-term potential remains, possibly buoyed by Musk’s influence and the ongoing promise of innovations like the robotaxi.
The situation underscores the delicate balance Tesla must navigate between political landscapes, market dynamics, and its strategic positioning in the evolving automotive industry. As the EV market matures and competition intensifies, Tesla’s success will increasingly depend on its ability to adapt to regulatory changes, manage costs, and maintain its edge in technology and consumer appeal.
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