Why Tesla Stock Was Sliding Today

Shares of Tesla (NASDAQ: TSLA) were heading lower on reports that the Trump administration planned to eliminate the $7,500 electric vehicle (EV) tax credit. Tesla also issued its sixth recall this year for the Cybertruck, this time over a faulty drive inverter component.

The stock closed down 5.8% on the news.

Image source: Tesla.

EV stocks fall

Tesla wasn't the only EV stock to fall on the news. Rivian Automotive and Lucid Group got hit even harder as both stocks are deeply unprofitable and more urgently need help to sell vehicles than Tesla, which is solidly profitable.

Reuters earlier this afternoon said that Trump's transition team intends to kill the $7,500 EV tax credit as part of a broader tax reform package, and also said that Tesla representatives have communicated their support for ending the subsidy.

Additionally, the stock pulled back earlier in the session on the Cybertruck recall and as the boom from Trump's victory and the broader "Trump trade" seemed to unwind. Tesla stock had soared in the days following the election, primarily due to CEO Elon Musk's alliance with Trump, though it's not fully clear how that will benefit Tesla.

Does losing the EV credit change anything for Tesla?

Musk said earlier in the year that ending the subsidy might slightly hurt Tesla's sales, though it would be worse for its U.S. EV competitors like Rivian and Lucid.

However, Musk has also complained about the impact of high interest rates on Tesla's business, essentially saying that consumers are price-sensitive and that it's hard for the company to compete on price since its vehicles are more expensive than gas-powered alternatives.

The most logical impact of taking away the EV credit is that it will favor gas-powered vehicles, meaning Tesla could lose sales to legacy automakers, or potential EV buyers may just choose to stick with their current vehicle. Even if it hits smaller EV companies like Rivian and Lucid harder, it's hard to see how the loss of the tax credit isn't a net negative for the leading EV company.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.