EV Tax-Credit Plan Disappoints. It’s a Setback for Tesla and Its Rivals.

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Under the current system, people who buy electric cars or trucks can only get a tax credit if the maker has sold fewer than 200,000 vehicles.


Drew Angerer/Getty Images

The latest plans to overhaul the system of tax credits for people buying electric vehicles aren’t the boost for producers such as Tesla and its peers that investors had expected. Yet moves in EV stocks on Thursday show investors don’t really believe the issue of tax credits is settled.

After the Senate passed the $1 trillion infrastructure bill, attention turned to the $3.5 trillion budget reconciliation bill, which includes provisions for many of President Joe Biden’s planned actions regarding climate change.

Changes to the tax deductions for people buying EVs are expected to be included. Right now, there is a federal tax credit of $7,500 for consumers buying an EV, but the credit isn’t available if an auto maker has sold more than 200,000 EVs. That cap affects

General Motors

(ticker: GM) and

Tesla

(TSLA).

As investors had expected, the budget reconciliation bill removed the 200,000-vehicle cap in what looked like a win for the industry. But it was too soon to celebrate. On Wednesday, the Senate passed an amendment that grants the $7,500 credit only for EVs that cost less than $40,000, and only if the buyer earns less than $100,000 a year.

Tesla stock was 0.1% lower in premarket trading, while GM stock fell about 0.2%. Shares of

Faraday Future

(FFIE) and

Lucid

(LCID)—both makers of high end, expensive EVs—were off 2% and 1%, respectively. The

S&P 500

and

Dow Jones Industrial Average

futures were both up about 0.1%.

Tesla stock, however, rebounded and was up 1.6% in afternoon trading. Lucid and Faraday shares were down 1.8% and 6.3%, respectively.

Tesla shares were down 0.3% on Wednesday. the day the amendment was proposed. The

S&P 500

and

Dow Jones Industrial Averag

e rose 0.3% and 0.6%, respectively.

The muted reaction to potentially bad news is a sign that investors and analysts believe negotiations over the credit are just beginning. And Nebraska Sen. Deb Fischer’s amendment is nonbinding. It doesn’t have to be adopted.

Wedbush analyst Dan Ives told Barron’s the EV credits in the budget bill are a “major first step in pushing consumers toward EV purchases.” And Baird analyst Ben Kallo pointed out that while a $40,000 price cap would limit the impact of the tax credits, the situation remains fluid.

Kallo and Ives have Buy ratings on Tesla stock.

Don’t forget. Fischer, a Republican, proposed the amendment. That is an indication that Republicans and Democrats seem to agree on some form of EV support.

Write to Al Root at allen.root@dowjones.com

William Murphy

William Murphy

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