According to CFRA analyst Garrett Nelson, the Inflation Reduction Act’s recent $7,500 tax credit for electric cars may have a significant positive impact on Tesla shares and the company’s financial results.
For Elon Musk & Co., the Inflation Reduction Act’s passage was akin to “Christmas in August,” Nelson said in a note to clients. “Most versions of the EV industry’s two best-selling EVs (Tesla’s Model 3 and Tesla’s Model Y) have become eligible to receive the the $7,500 federal electric vehicle tax credit effective Jan. 1, 2023,” Nelson said. Prior to the 200K units per manufacturer threshold, all Tesla cars had their tax credit eligibility phased away.
Nelson increased the price he had set for Tesla’s shares, from $1,125 to $1,245, implying a 43% increase over the company’s current level of trade. Nelson’s #1 selection in the automotive industry is Tesla’s shares.
For EVs costing up to $80,000 for trucks and $55,000 for cars, the Inflation Reduction Act offers purchasers a $7,500 tax credit. In order to be eligible for the tax credit, purchasers must have a household income of no more than $150,000 for single people or $300,000 for married couples. EVs built in North America are the only vehicles eligible for the tax credit.
Due to the additional tax incentive, 2023 buyers of electric vehicles will have competition for Tesla’s Model 3 and Model Y. The Ford Mach-E crossover has a basic MSRP of around $43,000. The base price of GM’s Chevy Bolt is roughly $38,000.
The price restriction that is imposed by the Inflation Reduction Act, which prevents buyers from purchasing more expensive models without a tax credit, according to Nelson, would benefit Tesla even more. The likes of Polestar, Lucid, and Mercedes may provide some of those more pricey options.
Furthermore, the new rule “substantially alleviates worries about EV competitiveness, since almost 70% of the 72 electric vehicle models presently for sale in the United States have suddenly became ineligible to get the tax credit under the new law,” says Nelson.
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