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Musk’s Trump support sparks Tesla risks

Musk’s Trump support sparks Tesla risks

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Tesla Risks

Elon Musk, CEO of Tesla, has reiterated his support for former president Donald Trump’s stance on eliminating electric vehicle tax credits, despite the potential negative impact on his company. During Tesla’s second-quarter earnings call, Musk emphasized the long-term value of the company’s self-driving technology, stating, “The value of Tesla, overwhelmingly, is autonomy.”

Tesla reported a 45 percent decline in quarterly profit compared to the previous year, with net profit falling to $1.48 billion. Revenue, however, increased by 2 percent to $25.5 billion.

The reduced sales were attributed to a global slowdown in EV sales and production disruptions. Following the earnings report, Tesla’s shares fell about 3 percent in after-hours trading. Musk has delayed the unveiling of the “cybercab,” a fully autonomous robotaxi, to improve the product.

He expects the first fully autonomous ride to be available “possibly by the end of this year.” However, Tesla has not yet applied for any exemptions with the National Highway Traffic Safety Administration to operate a noncompliant vehicle on public roads. Analysts have expressed mixed opinions on Tesla’s future. Gene Munster of Deepwater Asset Management remains optimistic due to Musk’s bold investments in autonomy, while Jessica Caldwell of Edmunds warns that Musk’s public support of Trump could alienate Democratic-leaning consumers who are more likely to be EV buyers.

Musk’s endorsement of Trump has highlighted the potential impact of a second Trump term on Tesla. While Trump has vowed to dismantle pro-EV regulations if elected, Musk believes removing electric-vehicle incentives would severely impact competitors while only slightly hurting Tesla. Following the earnings call, Musk posted a poll on social media site X, asking whether Tesla should invest $5 billion into his AI start-up, xAI.

The poll drew criticism, with investors questioning Musk’s commitment to Tesla, especially after reports that he diverted chips intended for Tesla to the AI start-up. Tesla’s Q2 earnings have revealed potential risks to its core electric vehicle business, particularly in relation to Musk’s political engagements.

Tesla’s political and market challenges

The company’s profitability from EV sales dropped to its lowest level in five years, with nearly half of its pre-tax earnings coming from the sale of regulatory CO2 credits, which are under threat if certain policies are reinstated. Rohan Patel, Tesla’s head of global public policy, warned that previous administrations had made significant efforts to dismantle pollution regulations, a trend that could continue. Tesla earned a record $890 million from the sale of EV credits last quarter, which are essential for companies that do not produce enough EVs to meet regulatory quotas.

Musk sought to downplay the risks associated with his political stance, stating, “I guess there would be some impact. It would hurt Tesla slightly,” but he also noted that competitors might suffer more. One significant risk involves Tesla’s Giga Mexico facility in Nuevo León, which could be shelved if heavy tariffs on vehicles produced in Mexico are imposed.

New data from analytics firm CivicScience indicates that favorability of Tesla has significantly decreased among Democrats, dropping to 16% as of mid-July, down 20 percentage points since January. This trend is evident in California, where Tesla’s registration declines have been reported for the third consecutive quarter. Musk’s outspoken political views, especially following his acquisition of Twitter (now X), have included numerous critiques of the Biden administration’s policies on immigration, border security, and clean energy.

These comments have not coalesced well with many potential Tesla buyers, particularly Democrats. Mark Spiegel, a Tesla short seller, commented that Musk’s actions could severely impact Tesla’s business, saying, “He completely alienated most of his buying base. … It’s going to kill the business.” Spiegel predicts that very few Democrats would be willing to purchase a Tesla at this point.

Despite the potential challenges, Musk remains publicly confident in Tesla’s market strength, irrespective of federal EV subsidies. The evolving situation highlights the intricate relationship between corporate leadership, political endorsement, and consumer response in the contemporary market landscape.

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