Tesla‘s (TSLA) stock experienced a significant drop of over 3% early Tuesday, last trading at $413.90 after closing at $426.50 on Monday, following President Donald Trump’s decision to dismantle a key pro-electric vehicle (EV) policy established by his predecessor. This policy, which aimed to ensure that 50% of new cars manufactured in the U.S. by 2030 would be electric, was among the 78 executive orders Trump revoked on his first day in office, signaling a shift away from aggressive EV promotion.
The immediate impact was felt across the EV sector, with stocks like Lucid (LCID) plummeting nearly 4% and Rivian (RIVN) dropping 6%. In contrast, traditional automakers General Motors (GM) and Ford (F) saw their stock values rise, 4% and 2.4% respectively, perhaps due to the alleviation of pressure to transition rapidly to EV production. Trump’s actions also include reviewing what he terms as “unfair subsidies” and “market distortions” that favor EVs, specifically targeting the EV tax credits and other financial incentives that have been integral to the growth of the electric vehicle market in the U.S. These credits, which were initially introduced under President George W. Bush, had been expanded by the Biden administration through the Inflation Reduction Act, providing significant support to the EV industry, especially in economically diverse states.
Joseph Shapiro, an associate professor of economics at UC Berkeley, emphasized to YF in November that the loss of the $7,500 EV tax credit could significantly impact consumer behavior, potentially discouraging buyers from opting for electric vehicles over traditional ones. However, Tesla’s CEO Elon Musk expressed a different view on a call with analysts after Tesla’s 2Q earnings report in July, asserting that while there might be some short-term impact on Tesla, the long-term effect could paradoxically benefit his company more than others. Musk’s confidence stems from Tesla’s lead in autonomous driving technology, which he believes is where Tesla’s true value lies, rather than in the immediate sales of electric cars.
Despite the day’s downturn, Tesla’s stock has enjoyed a substantial rally since Trump’s election, up over 65%, buoyed by what’s been termed the “Trump trade.” This trading phenomenon also encompasses other sectors like cryptocurrency, where stocks linked to digital currencies have seen gains, reflecting a broader investor optimism around Trump’s policies, which might include less regulatory oversight and potential tax reforms favorable to tech and innovation sectors.
The rollback of EV-friendly policies by Trump represents a significant pivot from the environmental and technological direction set by the Biden administration. While this might initially seem detrimental to EV manufacturers, the situation underscores a complex interplay between policy, market dynamics, and technological innovation. Tesla, with its focus on autonomy and a strong brand loyalty, might navigate these changes differently than its competitors, potentially leveraging its unique position in the market to adapt or even benefit from the new regulatory environment. However, the broader EV industry’s future will hinge on how quickly it can adapt to these policy shifts, innovate, and maintain consumer interest in electric vehicles amidst changing incentives.
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