"Trump's Electric Vehicle Subsidy Repeal"... Tesla and Rivian Stock Plunge

Donald Trump, the President-elect of the United States, is reported to have his transition team planning to abolish the electric vehicle (EV) tax credit of up to $7,500 based on the U.S. Inflation Reduction Act (IRA). Tesla's stock, which had surged for a while due to CEO Elon Musk's entry into the cabinet, immediately plunged nearly 6%. Other electric vehicle companies, Rivian and Nikola, also plummeted by 14% and over 22%, respectively.

Reuters Yonhap News

On that day, Tesla closed at $311.18 per share, down 5.77% from the previous session, on the New York Stock Exchange. Its market capitalization based on the closing price fell below the $1 trillion mark to $998.9 billion. Tesla's stock, which started the day at around $327 per share, showed a downward trend in the morning but sharply dropped in the afternoon following reports about the abolition of the EV tax credit. Currently, Tesla's stock is also recording a decline of about 1% in after-hours trading.

On the same day, Rivian's stock also fell by 14.30% compared to the previous session. Rivian is showing weakness in after-hours trading as well. Nikola (-22.76%), Lucid (-4.59%), NIO (-3.90%), and XPeng (-5.39%) also closed the regular trading session lower, similar to Tesla.

This follows news that Trump’s transition team plans to abolish the EV tax credit implemented by the Joe Biden administration to secure funds necessary for fulfilling tax cut promises. Tesla, the world's largest electric vehicle manufacturer, is also reported to support the transition team's plan to eliminate the subsidy. Elon Musk, a close associate of Trump and appointed head of the Government Efficiency Department in the second administration, had previously argued during the presidential campaign that abolishing the EV tax credit would not be a big problem for Tesla and could actually benefit Tesla by hitting competitors who rely heavily on the credit.

However, contrary to these optimistic claims, analysts suggest that if the tax credit of up to $7,500 per vehicle is abolished, consumers will inevitably find vehicle prices more burdensome, leading to a contraction in demand even for Tesla, the market leader. It is expected that more consumers will turn to relatively affordable eco-friendly hybrid models instead of electric vehicles. CNBC, a financial media outlet, diagnosed that this could seriously impact the already slowing EV transition in the U.S. Bloomberg News also predicted that "abolishing subsidies, a key component of the IRA, will deal a significant blow to the already struggling expansion of electric vehicles in the U.S. due to still high prices and insufficient charging infrastructure."

Meanwhile, the New York Stock Exchange closed lower across the board as the 'Trump rally,' which had overheated after the election, entered a lull, and Federal Reserve Chairman Jerome Powell hinted at slowing the pace of interest rate cuts. Tesla's stock weakness is also interpreted as reflecting fatigue over the Trump rally and Powell's hawkish remarks. Tesla's stock had surged 39.2% in just four trading days from the closing price of $251.44 on Election Day, November 5, to $350 on November 11. Despite the sharp drop on this day, Yahoo Finance noted that Tesla's stock price is still about 15% higher than the opening price on the day after the election.