Tesla’s share price nosedived Thursday as congressional Republicans revealed a tax cut bill that would eliminate a U.S. federal tax credit the electric vehicle maker relies on to keep afloat.
The Silicon Valley automaker’s stock tumbled from about $321 per share to roughly $296. The free fall comes as Republicans call for the immediate repeal of the $7,500-per-vehicle credit to help balance out the party’s hefty tax bill.
Making matters worse, the draft emerged shortly after Tesla announced its worst ever third quarter as the company admitted to not meeting production targets for the new Model 3 car — CEO Elon Musk managed to make just 220 of the 1,500 he promised.
Analysts argue the tax credit drives most of Tesla’s sales. Electric car sales slumped badly in Georgia, going from 1,400 a month to just 100 a month, after the state shuttered its $5,000 credit. Other countries have eliminated electric vehicle credits with similar results.
Data show that the elimination of the tax credit could be a death knell for companies like Tesla, especially considering the Silicon Valley automaker’s inability to mass produce vehicles at the scale of its larger competitors. The company relies heavily on the credit for survival.
A Wall Street Journal analysis from earlier this year, for instance, shows that there were no new Tesla Model S sedans and Model X SUVs registered in Hong Kong the month after that country revoked its version of the tax credit.
Hong Kong had 2,939 Tesla vehicles registered in March before the April 1 redaction of the credit, according to the WSJ, while 3,700 entered the department’s books during the early part of 2017. The end of the tax break was announced in February.
GM will also feel the effect of the bill as the company begins ratcheting up production on the Chevy Bold, a compact electric vehicle the Detroit automaker hopes will dethrone Tesla as top electric vehicle producer.
“Tax credits are an important customer benefit that can help accelerate the acceptance of electric vehicles. Because General Motors believes in an all-electric future, we will work with Congress to explore ways to maintain this incentive,” GM wrote in a press statement addressing the tax bill.
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