The profitability of Tesla Inc. could be severely impacted under the second Trump administration, with a potential 40% decrease. This prediction comes after a less than stellar Q4 sales performance and a 6% decrease in Tesla’s shares.
Background
JPMorgan analysts foresee more hurdles in the company’s path, based on President elect Donald Trump‘s plans to do away with EV tax credits and subsidies. These incentives have made Tesla’s vehicles more affordable to consumers, driving sales and revenue.
Tesla’s Sales Performance
For the first time, Tesla reported a drop in annual vehicle sales, with approximately 1.79 million cars sold in 2024, a slight decrease from the record 1.8 million sales in 2023. This comes in the wake of a broader slowdown in the EV market as consumer preferences shift towards more economical hybrids.
JPMorgan Analyst’s Doubts
JPMorgan analyst Ryan Brinkman expressed doubt about Tesla’s future prospects, stating that the company does not seem poised to dominate the global auto industry during the transition to electrification. Brinkman wrote:
“Tesla does not appear to us on track to dominate the global auto industry amidst the electrification transition, which we view as only the starting point for present valuation.”
Potential Losses
Brinkman projected that Tesla could lose around $3.2 billion due to regulatory changes under Trump, as government subsidies constitute a significant part of Tesla’s revenue. He also contradicted Elon Musk‘s assertion that the removal of EV subsidies would be beneficial for Tesla.
Impact on Investors
The slowing of deliveries, even ahead of a likely subsidy removal, could refocus investors on the deterioration in deliveries, revenue, gross profit, EBIT, EPS, and FCF estimates across all periods. Despite these obstacles, Tesla shares experienced a slight recovery on Friday morning, rising by about 4%.
Why It Matters
The potential elimination of EV tax credits and subsidies under the Trump administration could have a significant impact on Tesla’s profitability. These incentives have played a crucial role in making Tesla’s vehicles more affordable, thereby driving sales. The shift in consumer preferences towards more affordable hybrids could further exacerbate Tesla’s challenges.
Conclusion
The company’s ability to navigate these changes and maintain its market position will be crucial in the coming years. As the EV market continues to evolve, Tesla must adapt to changing consumer preferences and regulatory environments to remain competitive.