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Elon Musk\u2019s full-throated support of Donald Trump threatens to damage Tesla<\/a> in more ways than one.\u00a0<\/p>\n His embrace of the former president\u2019s brand of politics has already led to a\u00a0growing exodus<\/a>\u00a0of customers in California to his direct rival Rivian, another EV-only carmaker founded in the Golden State.\u00a0<\/p>\n But it could end up costing him dearly elsewhere as well. After the close of markets on Tuesday, Tesla revealed quarterly profitability from the sale of EVs dropped to its lowest level in five years, spooking investors and setting the stock up for a weak start in early Wednesday trading (shares were down more than 8% in pre-market trading). Worse, nearly half of the $1.89 billion it earned before tax accrued from the sale of regulatory CO2 credits, which could be on the chopping block should Trump be returned to office.\u00a0<\/p>\n Rohan Patel, Tesla\u2019s head of global public policy\u00a0until April<\/a>, warned the Trump administration did everything in its power to\u00a0dismantle California\u2019s carbon credit scheme<\/a>\u00a0and he would likely try again.<\/p>\n \u201cOne of the major drivers of this quarterly revenue was mentioned twice as a target for elimination by Trump in his convention speech,\u201d Patel wrote on Tuesday.<\/p>\n Tesla raked in a record $890 million from the sale of EV credits, a market-based instrument to reduce ambient CO2 levels by driving adoption of electric cars. Essentially rivals that do not sell enough EVs to meet minimum quotas pay companies that are compliant for the right to continue selling combustion engine cars.\u00a0<\/p>\n A reminder\u2026. One of the major drivers of this quarterly revenue (GHG and ZEV Standards) was mentioned twice as a target for elimination by Trump in his convention speech. <\/p>\n From 2017-2021, Trump and his EPA leadership did everything they could to dismantle those pollution\u2026 https:\/\/t.co\/gAAr6Ev7Bi<\/a><\/p>\n \u2014 Rohan Patel (@rohanspatel) July 23, 2024<\/a><\/p><\/blockquote>\n This additional revenue stream is essentially pure profit and companies can bank credits in excess of what they need. In the case of an EV-only player like Tesla that has no combustion business to offset, the constant flow of lucrative credits has been what the fossil fuel industry would call a \u201cgusher\u201d, for lack of a better word.\u00a0<\/p>\n When Tesla initially began to turn a profit, it was only thanks to this regulatory bonanza, which led critics to argue at the time it was effectively a EV credit sales company with a loss-making auto business bolted on.\u00a0<\/p>\n The importance of the credits has grown of late as a result of Musk\u2019s EV price war. Heavy discounting by Tesla has\u00a0diluted profitability<\/a>\u00a0from auto sales, with auto gross margins (not including credits) dropping to 14.6% in the quarter. This is the lowest since at least the start of 2019, according to UBS. Moreover, other carmakers unable to compete with Tesla are dialing back their own loss-making EV business and now need to purchase more credits.<\/p>\n Unsurprisingly Musk, who is not shy about placing his\u00a0politics above his business interests<\/a>, sought to downplay the risks from his Trump endorsement.<\/p>\n \u201cI guess there would be some impact,\u201d he admitted on Tuesday. \u201cIt would hurt Tesla slightly,\u201d but that\u2019s not all that bad since it would be \u201cdevastating<\/a>\u201d for his competitors.<\/p>\n Another key risk posed by Trump is to its Giga Mexico facility in Nuevo Le\u00f3n, first announced in\u00a0March 2023<\/a>. This was supposed to be the home of its\u00a0low-cost car model<\/a>\u00a0that would sell in the millions and drive the next wave of 50% annual volume growth.\u00a0<\/p>\n As EV growth started to cool after demand from\u00a0early adopters<\/a>\u00a0became saturated, car companies began to delay investments in new EV factories\u2014and Musk was\u00a0no exception<\/a>. Now he said he could end up shelving plans for the Nuevo Le\u00f3n facility entirely should his favored candidate be elected.\u00a0<\/p>\n \u201cTrump has said that he will put heavy tariffs on vehicles produced in Mexico,\u201d Musk told investors on Tuesday\u2019s earnings call. \u201cSo it doesn\u2019t make sense to invest a lot in Mexico if that\u2019s going to be the case.\u201d\u00a0<\/p>\n There is a potential scenario in which a Trump presidency could help Tesla. The real estate mogul takes a dim view of government involvement, viewing regulatory guardrails more as a straightjacket that chokes off entrepreneurism.\u00a0<\/p>\n He left the top job at the National Highway Traffic Safety Administration (NHTSA), the federal agency for the automotive industry, vacant for the entirety of his administration after the Senate refused his\u00a0nominee<\/a>.<\/p>\n Musk\u2019s support for Trump could hand the Tesla CEO an important say in influencing policymaking at NHTSA. Expected to play a key role in regulating self-driving vehicles, the agency took a more robust approach towards enforcement under Biden once it got its first new administrator in\u00a0five years<\/a>.<\/p>\n Musk\u2019s immediate top priority is the\u00a0Oct. 10<\/a>\u00a0unveiling of his dedicated robotaxi model. Built on a new vehicle architecture designed from the ground up, it is widely expected to lack a steering wheel and pedals. The problem is regulators are already grappling with the myriad risks from fully autonomous cars. Removing all the manual controls from a vehicle throws additional complexity into the equation.\u00a0<\/p>\n That\u2019s one important reason GM\u00a0cited<\/a>\u00a0as to why its robotaxi business Cruise will now ditch the purpose-built model called Origin in favor of what will essentially be an off-the-shelf version of the next Chevrolet Bolt EV only with more sensors and onboard compute.<\/p>\n When asked what implications this has on Musk\u2019s robotaxi, Musk incorrectly claimed it would\u00a0\u00a0not be a problem since Waymo already has approval to operate in several cities. Alphabet\u2019s autonomous car subsidiary, however, utilizes a souped-up<\/a> Jaguar i-Pace EV for its robotaxis.<\/p>\n<\/div>\n\n\n
Musk downplays concerns around Trump<\/h2>\n
Construction of Giga Mexico likely shelved due to Trump tariffs<\/h2>\n
Trump could help Musk\u2019s robotaxi plans by relaxing traffic safety regulations<\/h2>\n