Tesla: Shares fall as US law set to eliminate EV tax credits early
CEO Elon Musk’s plan to start a new political party could serve as a distraction from his role.
Mentioned: Tesla Inc (TSLA)
Key Morningstar metrics for Tesla
- Fair Value Estimate: $250.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
Electric vehicle tax credits worth up to $7,500 will now expire after September, seven years and three months early, thanks to the Republican spending bill signed into law on July 4. Tesla TSLA CEO Elon Musk says he plans to create a new political party. Tesla shares fell 6.79% in trading on 7 July in the US.
Why it matters: The elimination of the EV tax credits will likely result in lower sales volumes for Tesla after the credits expire, especially in 2026. The decline is likely to be industrywide, as we expect US EV sales to decline in 2026, similar to other countries following a subsidy cut.
- Musk’s plan to start a new political party could serve as a distraction from his role at Tesla. This could delay the company’s goals, such as moving the new robotaxi from testing to full launch and the production and sale of a new more affordable vehicle.
The bottom line: For now, we maintain our $250 per share fair value estimate. We view narrow-moat Tesla’s shares as slightly overvalued, with the stock trading approximately 20% above our fair value estimate. Accordingly, we recommend investors wait for a larger pullback before considering an entry point.
- For Tesla, sales of the Model 3 and Model Y could be the most affected. While these models are priced in the lower end of the luxury market, we think many buyers in the affordable vehicle market paid up for these models after tax credits.
- We will wait to hear from management in the earnings call later this month before updating our forecast. However, we estimate a fair value decrease of 5%-10% from lower sales volumes.
Big picture: We will review our US EV forecast for sales to reach 25% of autos by 2030. We expect to reduce it following the early elimination of the tax credit subsidy. While we expect a large decline in 2026, EV sales should return to growth in 2027, consistent with subsidy cuts in other countries.
