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Well, well, well. Just when Tesla (NASDAQ: TSLA) stock investors hoped most of the political stuff was safely in the rear-view mirror, CEO Elon Musk says he’s going to launch a new US political party.
Investors haven’t reacted well. As I type today (7 July), shares of the EV giant are down 7.8%!
Meanwhile, President Trump’s ‘One Big, Beautiful Bill’ has passed, meaning tax credits for EVs will end.
The question now is, might these developments crash the Tesla share price? Let’s look at some details.
America Party
Details remain unclear, but Musk has confirmed that he plans to bankroll a new political vehicle called ‘America Party’. It’s intended to take on the Democrats and Republicans, though Musk won’t be able to run for president himself, as he was born in South Africa.
There are three main problems I see here. The most obvious is that this venture will presumably take up a lot of Musk’s time. This isn’t ideal when he not long ago recommitted to working full time back at his companies, notably Tesla.
Investors had viewed his work at Doge — the Department of Government Efficiency — as a massive distraction. Who knows how much time launching a brand new political party will take up!
It’s the sort of thing you would expect someone to do only after stepping down from running a public company.
Second, this move will surely escalate the feud with President Trump, while upsetting some Republicans. There’s a risk that Musk’s rocket firm, SpaceX, might lose some lucrative government contracts. Dealing with that potential fallout would be another distraction.
Finally, I see a risk that this new party further harms Tesla’s sales. Based on the proposed name and Musk’s recent rhetoric, one imagines it would at least take an openly America-first approach. I fear this might further alienate potential Tesla customers, especially in Europe, where sales are already declining.
One big problematic bill
On the plus side, the Robotaxi network pilot is still ongoing. There have been reports of traffic violations and erratic driving, but so far no major incidents that would warrant pulling the plug.
Robotaxis have the potential to meaningfully drive revenue and earnings growth. But how many years will they take to scale? Surely a few.
In the meantime, there’s the impending financial impact of Trump’s bill. This abolishes the $7,500 tax credit for new EV purchases, starting 1 October.
In response, Tesla may have no choice but to cut prices, even if it hurts margins, or risk declines in US sales. Analysts at JP Morgan reckon eliminating EV credits could cost the firm nearly 20% of its 2024 operating income.
Should I buy the dip?
Unfortunately, I find it hard to be bullish on Tesla stock. Car sales are falling, competition is rising, and profits are going to take a hit from the Trump bill. And Musk is preparing a new headlong dive into politics.
To top it all, the stock is still trading at a sky-high 150 times forward earnings!
Stepping back, I think the only thing stopping a share price crash now is robotaxis. Were something to go wrong with those, I fear the worst.
That said, I could be completely wrong, and I would never bet against Tesla stock. I’m staying on the sidelines.
