When former President Donald Trump campaigned on a promise to end the $7,500 tax credit for electric vehicles, many pointed to his newfound close ties with Tesla CEO Elon Musk as proof that he wouldn’t really act to deliberately hurt America’s nascent electric car sector.

But as with everything with Musk, it’s not that simple. It never is.

Yesterday, Trump’s transition team made headlines when sources told Reuters that it was already formulating plans to kill the creditand that Tesla representatives told the team they supported the move. In other words, America’s largest electric car maker prefers to end a subsidy that has helped drive millions of its sales so far. (Tesla no longer responds to requests for comment from news outlets.)

It’s a puzzling argument to make. The US auto industry and related companies such as battery manufacturers are investing about 300 billion dollars in EV production aimed at giving America the tools to compete with a rising China, which also heavily subsidized that transition.

But the ongoing theory is that Tesla is the only American automaker (and really the only Western one) that is profitable and produces electric cars at scale, so ending the tax credits would hurt competitors that are eating into Tesla’s market share such as General Motors, Ford, Hyundai and others. Musk has been saying this for a while; on his social media platform X in recent months, he called for an “end (to) all government subsidies, including those for electric cars, oil and gas.” And on an earnings call in Julyhe said ending the credit would be “devastating for our competitors” but “long term probably actually helps Tesla.”

That may depend on the length of the “semester” Musk is talking about these days. Unless you have complete and utter blind faith that his five-dimensional chess game will ultimately prevail, this is not good news for Tesla, and its apparent CEO might want to look at his own balance sheet before pushing for this.

Photo by: Tesla

Tesla’s bottom line is also getting hurt here

There is no getting around the fact that the end of tax credits will hurt the entire EV sector. That’s why the U.S. auto industry’s top lobby group is so opposed to the move and is urging congressional Republicans to keep the momentum going or risk losing to China. Sure, Tesla has always been an outlier in that space, even more so than other startups like Rivian and Lucid; Musk has long leaned toward the idea that it is a “technology company” rather than a carmaker, which is what drives its sky-high valuation.

But as countless critics have pointed out, Tesla has long been dependent on subsidies of all kinds. (So ​​have Musk’s other companies, incl lucrative government contracts.) The EV and hybrid tax credit actually dates back to the George W. Bush administration. Save a few years in the late first Trump era and the start of President Joe Biden’s before the Inflation Reduction Act began — when automakers would lose the initial credit after selling a certain number of cars — Tesla have almost always benefited from these credits in some way.

While Tesla’s US sales have declined due to increased competition, the potential backlash to Musk’s online presence and policies, and its aging lineup (more on that in a moment), it has also benefited enormously from the IRA. Although Tesla also implemented intensive price cuts in 2023, these tax breaks still helped propel it to more than 650,000 sales in 2023—an increase of 25% from the previous year. And even if not all current Tesla models qualify because of where some of their batteries are made this really helps move metal.

Other types of subsidies help just as much. It’s unclear which ones Musk really wants to remove, but Tesla has collected billions of dollars over the years in regulatory credits: essentially, other manufacturers buy credits from Tesla because they themselves can’t meet strict emissions targets. It is represented nearly $2 billion in revenue in each of the last two years. Does Musk also want to get rid of the system that creates that situation? It is unclear.

That doesn’t sound like a lot for an automaker that pulled in $96 billion in revenue over the past two years, but between that and the sales hit, it adds up. So does the fact that Tesla once bet on being a major driver of the charge for the rest of the auto industry. Every US EV manufacturer switched to its plug type and got, or is working on, an agreement to access its Tesla Supercharger network. An analyst I spoke with said it was linked to another $20 billion for Tesla by 2030.

If the EV tax credit dies and electric sales from other automakers fall, you can add to that revenue, too.

The company’s “future” is still very much untested

Photo by: InsideEVs

If you were to ask Musk in one word about the real reason he’s doing this, my guess is it would be “robot axle.”

This era of Tesla is not betting the farm on electric cars or competing with China, but on the idea that it will one day crack the code for fully autonomous driving. In theory, everyone will want to move to their cars en masse because driving yourself will be as obsolete as owning a horse. (It’s actually a big part of why Tesla implemented so many price cuts in 2023: get as many people into its cars as possible and then charge for Full Self-Driving subscriptions.)

But if that’s the plan, it has to be where Musk means “long term.” Autopilot and FSD have gotten better in recent years, but they’re nowhere near ready for truly autonomous, steering-less driving. Google’s Waymo robot taxi service has logged more than 25 million miles of human driving to date; Tesla basically has no one logged. Even in the consumer car space, there are technologies that automate driving assistance better than Tesla can in many scenarios as the automaker relies entirely on AI and cameras instead of advanced sensor suites.

Now that he’s close to Trump, so is Musk bank on being able to tear through regulations which he feels are holding back autonomous vehicles while deploying new ones to fuel their growth. But again, that’s a long-game strategy at best that isn’t validated by anything we’ve seen so far from Tesla’s actual technology. And the company still has to sell cars in the meantime to pursue that dream.

This does not solve Tesla’s underlying problems

Photo by: Tesla

This is where it really starts to come down for Tesla: its family of cars is getting old. The world’s best-selling car in 2023, the Model Y, is quickly losing ground to new competitors in terms of specifications and performance. Other automakers are rapidly expanding into electric spaces that Tesla ignores, like three-row SUVs and affordable compact cars. Musk even said recently that he doesn’t see any point in making a “regular” $25,000 EV that isn’t fully autonomous because it wouldn’t invest in the future; “It would be completely contrary to what we believe,” he said on a recent earnings call. And there are many signs of it Cybertruck demand also slips.

Tesla is expected to be released an updated “Juniper” Model Y next year, and there is no doubt that it will boost sales of electric cars. But with Musk increasingly bored with making carsand very few new models on the horizon, and an industry and a driving population that just isn’t ready for full autonomy yet, where does Musk expect the growth to come from? The plan for Tesla may be to kneecap its EV rivals, coast with modestly updated versions of its current cars, live without regulatory credits, and then wait out however long it takes to become a robot taxi company — all while hoping the fallout from Musk’s own antics don’t do it. t completely tank their own sales.

If that is indeed the case, we should all get comfortable. We will be here for a while.

In the meantime, it’s hard to see who really gains from killing the tax breaks except the oil industry and China. It will definitely not be the country’s largest electric car manufacturer.

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