Tesla Stock Can Get Over This Shock
Tesla Motors Inc (NASDAQ:TSLA) stock has been hovering around the $190.00 level for a while and may remain subdued as its impending deal with SolarCity (NASDAQ:SCTY) goes through next week. But TSLA stock is hitting the headlines after the unexpected win of Donald Trump in the presidential election.
It is expected that in all likelihood, Trump would end subsidies for clean energy companies. Moreover, he may not extend the tax credit available to buyers of electric vehicles. The Trump administration is likely to bring about a lot of changes in its energy policy, focusing more on non-renewable energy sources like oil and coal. This is one reason why Tesla stock fell yesterday.
Subsidies have played a big role in the success of Tesla Motors Inc. This was one of the reasons why Robert Murray, a Trump supporter and CEO of Murray Energy Corporation, had called Tesla a “fraud” last month on CNBC. (Source: Musk fires back at coal CEO who called Tesla a ‘fraud’, CNBC, October 10, 2016).
The future of Tesla Motors Inc is dependent on the success of its “Model 3.” But it is not clear how President Trump may impact the sale of the company’s first mass market car. At present, a $7,500 federal income tax credit is available to all Tesla buyers and several states offer additional incentives as well; which will help in lowering the cost of the Model 3. Such incentives have boosted sales of Tesla Motors Inc in the past and have been positive for TSLA stock. But once a manufacturer reaches sales of 200,000; the tax credit is phased out.
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It is expected that Tesla may reach the mark of 200,000th U.S. vehicle somewhere around 2018, after which most Model 3s may not qualify for the credit. However, Susquehanna International Group analyst Matt Stover expresses his doubts that people reserving a Model 3 in 2016 are thinking about a tax credit that is some two or three years away. He thinks that “90 percent of them will still buy the car even after the tax credit goes away”. (Source: Will end of tax credit slow Tesla’s Model 3?, CNBC, April 4, 2016).
With regard to subsidies, Tesla was more dependent on them in its early years as compared to the present. The end of government subsidies is unlikely to end Tesla’s business. Tesla enjoys a strong fan base on the back of its product quality. Donald Trump’s denial of climate science is not going to change that. Also, a company like Tesla creates a number of manufacturing jobs in the U.S., which is what Donald Trump wants.
Bottom Line On Tesla Stock
The big hurdle in the way of Tesla’s success is its production problems, and the company is working towards resolving them. A Trump presidency may not be a difficult test to pass for Tesla, and TSLA stock may resume its march towards $200-plus levels if Tesla can reduce this execution risk.