A lesser-known policy elimination in the Republican tax and spending bill may further dampen the outlook for Tesla shares, according to William Blair. Analyst Jed Dorsheimer on Monday downgraded Tesla to market perform from outperform. The bill, which was signed into law Friday by President Donald Trump and approved by Congress last week, expands Trump’s 2017 Tax Cuts and Jobs Act — making most existing tax rates permanent — while also increasing spending for the administration’s defense, deportation and national security efforts and cutting health care and nutrition programs. Directly affecting Tesla is the bill’s elimination of a $7,500 tax credit for the purchase or lease of a new electric vehicle, which was intended to make EVs more affordable for buyers and reduce carbon emissions. What investors didn’t fully expect, however, was the impact of the bill’s cut to fines that automakers would have faced under Corporate Average Fuel Economy standards. This elimination “requires a reset in expectations,” Dorsheimer said. “While the $7,500 tax credit is likely to affect demand, the combination of a demand headwind and over $2 billion in profit from regulatory credits at risk may be too much for investors to bear,” the analyst wrote in a note to clients. “Unlike the EV tax credit, we expect the reduction in regulatory credit revenue to result in a direct hit to profitability, prompting yet another across-the-board reset to Street models.” Dorsheimer expects the removal of the EV tax credit, which ends Sept. 30, to lead to an increase in unit volumes in the third quarter but then pressure fourth-quarter sales and margins. Lower factory utilization and pricing concessions should weigh on Tesla’s fourth-quarter performance, he said. The risk of CEO Elon Musk’s political efforts to Tesla stock is also back on the table for investors, many of whom believe that Musk’s brief role with the Department of Government Efficiency (DOGE) damaged the company’s brand and sales. Musk announced the formation of a new political party over the Fourth of July weekend, writing in a Saturday post on X that “today, the America Party is formed to give you back your freedom.” Musk is opposed to Trump’s bill. “We expect that investors are growing tired of the distraction at a point when the business needs Musk’s attention the most and only see downside from his dip back into politics,” Dorsheimer said. “We would prefer this effort to be channeled towards the robotaxi rollout at this critical juncture.” Tesla shares were down more than 6% in the premarket.
