One Tesla analyst is saying that a major stock concern that has been discussed as the Trump administration aims to eliminate many financial crutches for EV and sustainable industries is overblown.
As the White House continues to put an emphasis on natural gas, coal, and other fossil fuels, investors are concerned that high-powered sustainability stocks like Tesla stand to take big hits over the coming years.
However, Piper Sandler analyst Alexander Potter believes it is just the opposite, as a new note to investors released on Monday says that the situation, especially regarding regulatory credits, is “not as bad as you think.”
Tesla stacked emissions credits in 2023, while others posted deficits
There have been many things during the Trump administration so far that have led some investors to consider divesting from Tesla altogether. Many people have shied away due to concerns over demand, as the $7,500 new EV tax credit and $4,000 used EV tax credit will bow out at the end of Q3.
The Trump White House could also do away with emissions credits, which aim to give automakers a threshold of emissions to encourage EV production and cleaner powertrains. Companies that cannot meet this threshold can buy credits from other companies, and Tesla has benefitted from this program immensely over the past few years.
As the Trump administration considers eliminating this program, investors are concerned that it could significantly impact Tesla’s balance sheet. Potter believes the issue is overblown:
“We frequently receive questions about Tesla’s regulatory credits, and for good reason: the company received ~$3.5B in ‘free money’ last year, representing roughly 100% of FY24 free cash flow. So it’s fair to ask: will recent regulatory changes threaten Tesla’s earnings outlook? In short, we think the answer is no, at least not in 2025. We think that while it’s true that the U.S. government is committed to rescinding financial support for the EV and battery industries, Tesla will still book around $3B in credits this year, followed by $2.3B in 2026. This latter figure represents a modest reduction vs. our previous expectation…in our view, there’s no need for drastic estimate revisions. Note that it’s difficult to forecast the financial impact of regulatory credits — even Tesla itself struggles with this — but the attached analysis represents an honest effort.”
Tesla’s regulatory credit profitability by year is:
- 2020: $1.58 billion
- 2021: $1.465 billion
- 2022: $1.776 billion
- 2023: $1.79 billion
- 2024: $2.763 billion
Potter and Piper Sandler maintained an ‘Overweight’ rating on the stock, and kept their $400 price target.
Tesla shares are trading at $329.63 at 11:39 a.m. on the East Coast.
