The bad news keeps rolling in for Tesla Inc (Nasdaq: TSLA). TSLA stock dropped 6.8 percent Thursday after investors learned that the GOP tax plan would eliminate a $7,500 federal tax credit that makes it easier to buy electric vehicles.
The news comes on the heels of Tesla’s major earnings miss and admission that there will be further delays in Model 3 production. All together, the turn of events pushed Tesla stock below $300 per share for the first time since March.
The changes to the tax code would go into effect after the 2017 tax year and potentially impact 2018 sales. While electric cars represent only a tiny fraction of total sales for Ford Motor Co. ( F) and General Motors Co. ( GM), Tesla’s entire fleet is electric.
[Read: How to Invest in the Car of the Future.]
Earlier this year, Tesla CEO Elon Musk said the tax break wasn’t helping Tesla much to begin with. In fact, Musk, who resigned from President Donald Trump’s business advisory council following the president’s decision to exit the Paris Agreement on climate change, said the credit was actually doing more harm than good.
“It’s almost like over the years there’s been all these sort of irritating articles like Tesla survives because of government subsidies and tax credits,” Musk said on Tesla’s second quarter earnings call. “What matters is whether we have a relative advantage in the market, and, in fact, the incentive gives us a relative disadvantage.”
Some Wall Street analysts are growing skeptical of Tesla given its ballooning earnings losses and inability to hit its production targets. Tesla had targeted a Model 3 production rate of 5,000 vehicles per week by December 2017 but said on Wednesday it now doesn’t expect to hit that target until late in the first quarter of 2018.
Morgan Stanley analyst Adam Jonas says there is too much risk in Tesla stock at the moment.
[See: Car Companies and the Race to Profits.]
“Longer term, we continue to harbor serious concerns about the sustainability of Tesla’s competitive moat versus what we see as the inevitable encroachment from tech firms both in the U.S. and internationally that have superior access to capital and human talent and business models that can withstand substantial operating losses,” Jonas says.
Oppenheimer analyst Colin Rusch says investors should tread cautiously. “While we believe TSLA has the potential to become a transformative technology company and deliver outsized returns for investors, the company’s pace of growth, recent questionable decisions around capital allocation, and lack of disclosure keep us on the sidelines,” Rusch says.
Morgan Stanley has an “equal-weight” rating and $379 price target for Tesla. Oppenheimer has a “perform” rating on the stock.
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Tesla Inc (TSLA) Could Lose a Major Tax Credit in 2018 originally appeared on usnews.com
