JP Morgan Thinks Tesla Will Be The Biggest Loser From Trump Anti-EV Policies – CleanTechnica

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There has been a lot written here at CleanTechnica since the last election about how renewed anti-EV animus may help or hurt the auto industry, especially Tesla. Most interpret the rapid increase in value of Tesla stock as a sign that investors see Elon Musk getting everything he wants from the new administration, especially when it comes to rules for self-driving cars that favor Tesla. Elon has been cavorting around Mar-A-Loco a great deal lately, acting more like a conquering hero than a CEO.

The joy about Tesla’s meteoric stock price increase has not spilled over to everyone in the investment community, however. According to Bloomberg Hyperdrive, analysts at JPMorgan think the market is suffused with false euphoria. In fact, they believe Tesla may have the most to lose of any car company from the shifting regulatory landscape. Their back of the envelope assessment actually suggests about 40% of Tesla’s profits could be under threat. Ryan Brinkman of JPMorgan has been meeting recently with senior management leaders at General Motors, Ford, and Stellantis, along with more than half a dozen Tier One suppliers to the auto industry, during a trip to the Motor City.  Most of the executives Brinkman’s team met with expect Trump to make a series of moves to the detriment of companies that produce and sell electric vehicles, such as:

• Curtailing the up to $7,500 consumer tax credit for EV purchases and leases provided by the Inflation Reduction Act.
• Revoking the waivers that allow California to regulate emissions more stringently than the Environmental Protection Agency does. If that happens, it could seriously impact the state’s zero-emission vehicle mandate.
• Relaxing federal standards for tailpipe pollution and fuel efficiency which would allow over-complying companies to sell compliance credits to those with shortfalls, just as California’s program does.

JPMorgan Sees Tesla Stock Price In Decline

This confluence of regulatory changes may preclude GM and Ford from lessening EV losses this year and potentially next year, Brinkman wrote in a report published Wednesday, in which he reiterated his sell rating on Tesla and kept his target price at $135 per share. That forecast implies a 66% downside from its recent share price of $395. He told the auto executives he sees the changes proposed by the next administration as being a net positive for Detroit automakers in the medium term, as they will allow the companies to sell more profitable combustion engine powered models longer than expected. That may be bad news for the environment, but the new administration with its “Drill, Baby, Drill” emphasis doesn’t care a fig about the environment.

“The changes strike us as highly negative for Tesla, threatening an estimated ~40% of its profits,” Brinkman wrote. Here’s how Brinkman arrived at that 40% figure. The Treasury Department recently announced that, from January through October, it had extended more than $2 billion of EV tax credits to consumers. That is equivalent to about $2.4 billion of annualized support that automakers may have to offer in the US government’s stead if Trump does away with the credits. Brinkman estimates that Tesla customers received around half of those credits last year, meaning the company would face around a $1.2 billion headwind if the tax credits expire.

He further estimates that the US accounts for around three-quarters of the $2.7 billion in regulatory credit sales that analysts are projecting Tesla will generate this year, which amounts to a further $2 billion headwind. The combined $3.2 billion compares to the Bloomberg-compiled consensus that Tesla will earn about $8.3 billion this year before interest and taxes. Investors have tempered their enthusiasm about Tesla the last few weeks, with the stock trading down about 18% from the record high it reached on December 17. But the carmaker has still added more than $460 billion of market capitalization since Election Day, which is roughly the equivalent of Toyota, BYD and GM’s combined valuations.

Others Are Bullish On Tesla

Ben Kallo, an analyst at Robert W. Baird, issued his own report last week that is far more upbeat on the prospects for Tesla stock, He told Bloomberg that Tesla is among the stocks he’s fielding the most questions about early this year. “We expect valuation to be one of the primary bear arguments in 2025 and anticipate pushback with several unknowns,” Kallo wrote.

Yahoo also addressed the prospects for Tesla stock this week. It says Wall Street thinks Tesla’s adjusted earnings will grow by 27% annually through 2025, which makes the current valuation of 164 times adjusted earnings look absurdly expensive. However, Dan Ives at Wedbush sees the situation differently. In November, 2024, he told CNBC, “Today, I view Tesla as the most undervalued AI name in the market.” The stock is up 14% since then, but Ives’ bull-case target at $650 per share still implies 65% upside from the current share price of $395.

Ultimately, Yahoo says, Tesla is a risky investment because much of its valuation is based on products that have yet to become material revenue streams — meaning FSD software and robotaxis. Investors who lack confidence in the autonomous driving narrative should avoid the stock and those shareholders who feel similarly should exit their positions. In the absence of autonomous driving technology, Tesla shares are wildly overvalued, it says.

On the other hand, investors who are confident that Tesla can disrupt transportation and mobility should consider buying a small position and current shareholders with similar sentiments should continue holding the stock, provided they are comfortable with volatility. Tesla is richly valued and shares may decline sharply on any bad news. But if it becomes the autonomous driving powerhouse it aims to be, Tesla should be worth far more in the future.

Fear & Greed

That, in a nutshell, is how the stock market works. Analysts actually make a living making predictions that are internally inconsistent and mutually exclusively. The stock market is driven by two emotions, fear and greed, the conventional wisdom says, rather than actual financial intuition. As they say in the world of sales, people buy on emotion and justify their decision later with facts. That seems to apply equally to investment decisions. The analysts don’t actually know any more than you do, but they set themselves up as authorities who provide the “facts” people need to make themselves feel they have made smart investing decisions. Warren Buffett may not operate that way, but many of us who dabble in the stock market likely do.

Every time we write a story about Tesla, we get tons of comments. Some think we are brilliant; others think we are from complete idiots. The truth is probably somewhere in between. Hopefully, amongst all the noise, there is a kernel of news you can use.