Tesla, once a vocal opponent of electric vehicle tax credits, is now pushing for their preservation as the U.S. Senate debates a new budget proposal that could significantly impact the EV industry. Elon Musk, who just last year argued for removing all industry subsidies—including those for EVs—has changed his stance in light of Tesla’s recent financial struggles.
Previously, Musk declared that removing the $7,500 tax credit would benefit Tesla more than its competitors, believing the company could thrive without government support. However, with proposed legislation threatening to end EV and solar tax incentives while keeping fossil fuel subsidies untouched, Tesla and Musk are speaking out.
In a recent post, Tesla’s energy division warned that a sudden removal of energy tax credits would undermine America’s energy security and grid stability. Musk followed up, pointing out the unfair targeting of clean energy incentives, while oil and gas subsidies remain intact.
Falling Sales and Financial Pressure
Tesla’s reversal appears to be driven by its declining performance. The company has seen a sharp drop in sales in 2024, along with a 71% plunge in profits during the first quarter. With customer interest waning, particularly in the U.S. and abroad, Tesla now needs all the support it can get to keep demand afloat.
Analysts estimate that ending the EV tax credit could cost Tesla up to $1.2 billion annually. Once believed to be immune to such losses, Tesla now faces mounting pressure. According to experts, the credits directly boost buyer interest by making EVs more affordable, indirectly benefiting automakers like Tesla.
The proposed “Big Beautiful Bill” has created tensions between Musk and former allies, including former President Donald Trump. Once considered a key ally of the administration, Musk now finds himself at odds with the Republican-led proposal. Trump expressed disappointment, suggesting that Musk only opposed the bill after realizing its impact on the EV industry.
Analyst Outlook and EV Market Challenges
Musk denies that his opposition is solely due to the removal of the EV tax credit. Instead, he criticizes the bill’s excessive spending and lack of cuts to fossil fuel subsidies. However, Tesla’s changed tone suggests the credits are more critical than previously admitted.
Industry analysts have also revised their views. Garrett Nelson of CFRA Research, who once saw the tax credit’s removal as a way to strengthen Tesla’s competitive edge, now believes losing the credits could hurt the company’s long-term outlook. He noted that shrinking EV demand globally, particularly in China and Europe, and the potential loss of U.S. tax support, are key reasons for downgrading Tesla stock.
Dan Ives of Wedbush Securities echoed similar concerns, noting that while Tesla might fare better than some rivals, it still depends on market demand fueled by incentives. Tesla’s current lineup lacks lower-priced models that could attract budget-conscious consumers—a gap that the tax credit helps to fill.
Adding to the challenge, proposed legislation would maintain credits for newer EV players like Rivian and Lucid, but remove them for Tesla and established automakers. This could widen the price gap and further reduce Tesla’s appeal in a cooling EV market.
With U.S. EV adoption seemingly plateauing, Musk’s pivot shows that even industry leaders cannot afford to ignore the role of government policy in shaping the future of clean transportation.
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