Tesla stock dropped on Thursday as investors worried that President-elect Trump would end electric vehicle purchase tax credits.
That leaves one question for investors: What did you think was going to happen?
Shares of the electric-vehicle maker finished down 5.8% at $311.18 while the S&P 500 and Dow Jones Industrial Average sank 0.5% and 0.6%, respectively. Rivian Automotive shares tumbled 14%, while General Motors was down 0.1% and Ford Motor shares were off 0.3%.
At $311.18, Tesla's market value is $999 billion, just shy of $1 trillion, based on 3.21 billion shares outstanding.
Tesla shares spent all of the day in the red, but losses accelerated and shares closed at daily lows after Reuters reported the President-elect was likely to eliminate $7,500 purchase tax credits for EVs.
The Trump transition team didn't immediately respond to Barron's request for comment.
Investors can be surprised by the reaction, but not the pending policy decision. Trump talked about removing so-called EV mandates frequently on the campaign trail, and Wall Street analysts almost unanimously expect Trump to target the credits.
The consensus opinion among analysts is that a credit rollback is relatively neutral for Tesla -- and negative for the rest of the industry. Tesla has the scale and cost structure to be profitable without the credits. Less competition from EV makers who need the credit means more market share for Tesla.
Thursday's performance came in spite of a big price target increase earlier in the day, too. Jefferies analyst Philippe Houchois raised his price target for Tesla stock to $300 from $195, and kept his Hold rating. Houchois even suggested Tesla management use the recent rally in Tesla stock to raise equity.
Tesla generates positive free cash flow. Wall Street projects free cash flow of $2.8 billion in 2024, and $5.4 billion in 2025. Free cash flow comes after investment spending. Tesla is expected to spend some $11.5 billion on plants and equipment in 2024. An equity raise doesn't feel necessary at this point.
A target price bump of $105, or 54%, is significant and investors might have expected a better stock reaction. Coming into Thursday trading, Tesla shares were up almost $80, or 31%, since the Nov. 5 presidential election.
That rally took Tesla's stock market value north of $1 trillion and Tesla's stock price beyond current Wall Street targets. The average analyst price target of Tesla shares aggregated by FactSet is about $242, up from about $235 since the election.
Tesla stock rose by 0.5% on Wednesday, following President-elect Trump's announcement that Tesla CEO Elon Musk and Vivek Ramaswamy would lead a consulting-like effort at the newly created Department of Government Efficiency.
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