President Donald Trump’s proposed tax cuts and the loss of a crucial tax credit could cause Tesla’s shares to fall more than 40 percent, according to a Friday report from JP Morgan.
Stiff competition from other automakers and a potential law eliminating the hefty tax credit for the electric vehicle industry could wreak havoc on the Silicon Valley company, analyst Ryan Brinkman wrote in a memo. Supporters of the tax credit have made similar claims.
“Competition for electric vehicles will increase in 2018 even as the regulatory environment in the United States may become less of a tailwind, including possible tax law changes and exhaustion of the $7,500 US federal tax credit available to buyers,” Brinkman noted, adding that these milestones “will be difficult for the company to meet.”
Supporters of the tax credit claim it helps reduce the price of gas-free vehicles for consumers and helped the electric vehicle industry expand. It’s limited to the first 200,000 vehicles a company produces, but is scheduled to end in 2018. Tesla is coming dangerously close to hitting that limit.
Advocates have lobbied for months to keep the credit afloat. But the legislation, which seeks to slash the corporate tax rate to 20 percent from 35 percent and reducing the number of tax brackets for individuals, would likely dash their hopes of keeping the gravy train on its tracks.
Analysts also criticize Tesla’s ability to bring the mid-priced Model 3 to full production, having delivered far fewer sedans than expected in 2017. Tesla delivered only 220 Model 3s during the fourth quarter, a number well below the 1,300 that analysts surveyed by FactSet expected on average. Tesla sold these vehicles in the quarter to employees and investors.
Production on the highly-touted vehicle was expected to expand from 100 cars in August to 1,500 in September, and plateau to 20,000 per month in December. Musk plans to eventually build 20,000 cars per month – Tesla will have to ramp up production dramatically if it hopes to hit the December mark.
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