Tesla could see 40% of its profits evaporate when Trump takes office, JPMorgan says
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- Tesla's disappointing sales could be a wake-up call for investors.
- JPMorgan estimated that Trump's proposed cuts to EV subsidies could cost Tesla $3.2 billion.
- Musk's car company benefits from existing emissions regulations.
Tesla is poised for a tough year under the second Trump administration, despite CEO Elon Musk's friendship with the president-elect.
Following disappointing fourth-quarter sales results and a 6% dip in Tesla shares on Thursday, JPMorgan said more trouble could be ahead.
The bank's analysts estimated that, based on Trump's proposals to remove EV tax credits and subsidies that help make Teslas more affordable, about 40% of Tesla's profits would be in danger after Trump takes office.
Musk's car company is already seeing a slowdown in demand — on Thursday it reported a drop in annual vehicle sales for the first time.
"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," the analyst Ryan Brinkman wrote in a note to clients on Friday morning.
Tesla said it sold about 1.79 million cars in 2024, down slightly from a record 1.8 million sales in 2023 and its first year-over-year decrease since becoming a major player. The results rounded out a year when Tesla finally started to feel the pinch of a larger slowdown in the EV market as consumers gravitated toward more affordable and practical hybrids.
The results also slightly reversed a stunning postelection rally for Tesla's stock price, as investors were encouraged by Musk's proximity to the White House and his new extragovernmental commission's work to relax autonomous-vehicle regulations that restrict Tesla's big robotaxi plans.
Brinkman argued that Thursday's sales results should be investors' wake-up call.
"The slowing of deliveries, even ahead of a likely subsidy removal, we think has the potential to refocus investors on the deterioration in deliveries, revenue, gross profit, EBIT, EPS, and FCF estimates across all periods," Brinkman wrote, reiterating a bearish $135 price target for the stock.
Musk has insisted that removing EV subsidies would benefit Tesla, but Brinkman disagreed. He estimated that Tesla has the most to lose from shifting regulations under Trump, costing it about $3.2 billion, as government subsidies account for a reliable minority of Tesla's revenue.
Tesla's regulatory-credits business has for years provided a reliable cash flow. Essentially, Tesla makes money on the EVs its competitors don't sell when these companies purchase Tesla's extra regulatory credits. Additionally, Tesla's most affordable vehicle, the Model 3, benefits from the $7,500 tax credit applied to some new EV purchases under the Inflation Reduction Act.
Tesla shares rebounded slightly on Friday morning, up by about 4%.