Elon Musk has a Donald Trump card. The boss of the $780 billion battery-powered-car maker has backed the Republican presidential candidate, whose vow to end government support could crimp the electric vehicle industry. That isn’t as backwards as it sounds. A decision to roll back benefits to EV makers would squeeze competitors much more than Tesla (TSLA.O). Maintaining the dominance of his car business might be a worthwhile trade-off for Musk.
The rise of rivals from Detroit to Shenzhen has not been good for the Texas-based company. Jockeying for the global electric-vehicle sales crown with China’s BYD (002594.SZ), , Musk’s company has slashed prices. Adjusting for regulatory credits sales, Tesla’s automotive gross margin crashed to a multi-year low of 14.6%, according to second-quarter results unveiled Tuesday, from a 30% peak in 2022. In the U.S., sales fell 6% year-over-year, despite improved growth in the overall market, according to Cox Automotive.
Trump’s vows to end the U.S. government’s “mandate” for electric vehicles and raise tariffs on wares like auto parts, which he may do, promises more woes. President Joe Biden’s Inflation Reduction Act offers up to $7,500 in subsidies for buyers; ending them could reduce industry sales by 27% in 2030, according to a Brookings Institution paper. A 10% levy on imported car parts would add $1,500 in costs for the average vehicle, Wells Fargo analysts reckon.
Tesla, though, is not average. Wells Fargo also points out that 65% of its parts come from the U.S. and Canada, versus 45% industry-wide. And Tesla, unlike Detroit-based competitors, actually makes money on zero-emissions vehicles. General Motors (GM.N) earlier on Tuesday said its electric cars will take longer than expected to cover their costs after lowering anticipated production volume.
That last point is key: going electric involves heavy fixed costs that require sharply ramping sales to pay off. A policy change shrinking the industry makes the math tougher for Tesla’s competitors and easier for Tesla. And if a Trump White House loosens emission rules, the incentive for peers to bear that pain diminishes. Both GM and Ford Motor (F.N) say they toggle EV plans to offset the regulatory pinch on gas-guzzlers.
If they pull back on production of the Chevrolet Blazer or the F-150 Lightning, Tesla benefits. Right now, free cash flow is expected to fall 62% to $1.7 billion this year, according to Visible Alpha. Musk needs those dollars as he transforms his company from the vanguard of an electric revolution into a bet on self-driving taxis and humanoid robots. Those moonshots are the focus. The greening of American transportation, less so.
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CONTEXT NEWS
Tesla said on July 23 that it had generated $25.5 billion in revenue in the second quarter of 2024, 2% above analysts’ estimates, according to Visible Alpha, and the year-ago quarter. Automotive revenue of roughly $20 billion fell nearly 7% year-over-year. Excluding regulatory credits, the $780 billion company’s gross margin on car sales came in at 14.6%, down from a peak of 30% at the beginning of 2022.
The electric-car maker’s CEO Elon Musk endorsed Republican presidential candidate Donald Trump on July 13 in a post on social media network X. Trump has said that he will “end the electric vehicle mandate” if he wins office, referring to policies put in place by the current administration of U.S. President Joe Biden to support EV sales.
