Why Does Elon Musk Support Ending EV Tax Credits? Here Are Two Reasons

Elon Musk wears many hats. He’s the CEO of America’s leading electric vehicle maker—and an influential advisor to Donald Trump, a president-elect who may end federal support for electric vehicles.

Trump’s transition team reportedly is preparing plans to eliminate the $7,500 electric vehicle tax credit, a key piece of President Biden’s efforts to accelerate U.S. EV adoption and a major tailwind for Tesla (TSLA). Musk has reportedly told Trump he supports those plans.

Trump’s plans for EVs and the associated tax credits have yet to be publicly detailed. Still, Musk’s support for Trump’s EV plans has raised questions about why he would endorse seeming headwinds for his own company. Here are some possible explanations.

Tesla’s Scale an Advantage Over Competitors

Trump’s second term is expected to be difficult for the EV industry overall. In addition to scrapping EV tax credits, Trump has vowed to rescind vehicle emissions standards that would force car manufacturers to make EVs a greater portion of their total sales throughout the next decade. 

Yet some see the potential for Tesla to benefit from Trump’s anti-EV policies. Musk himself said on a call with investors in July that eliminating the federal tax credits could benefit Tesla in the long-term in part because “it would be devastating for our competitors.”

Tesla is one of the only U.S. carmakers whose electric vehicles are profitable, giving it a buffer against industry-wide headwinds. The company can build electric cars at a lower cost than domestic competitors, enabling it to undercut them on pricing in a market without subsidies.

Still, Tesla’s sales are likely to be hurt by the elimination of the EV tax credit. Gene Munster, co-founder of Deepwater Asset Management, has compared the end of the EV tax credit to a 15% price hike on Tesla cars that would cut into sales.

Ending the tax credit could also discourage competitors like General Motors (GM) and Ford (F) from continuing to invest heavily in EVs, leaving the door open for Tesla to grow its already sizable market share. 

Musk All-In on Autonomous Cars

Musk’s support for ending EV subsidies could also stem from his big bet on autonomous driving and robotaxis. “The value of Tesla overwhelmingly is autonomy,” he said of questions about EV tax credits in July. “These other things are an annoyance relative to autonomy,”

The Trump team plans to make a federal framework for autonomous vehicles a priority of the incoming Transportation Department, Bloomberg reported Monday. A framework that accelerates the adoption of self-driving cars would benefit Tesla, which unveiled prototypes of two new autonomous vehicles last month. 

Musk expects Tesla’s Cybercab and Robovan, neither of which has pedals or a steering wheel, to eventually form a robotaxi fleet that competes directly with ride-sharing services like Uber (UBER) and Lyft (LYFT). 

Since articulating that vision, Tesla’s stock has soared as some investors have reframed Tesla as an autonomous vehicle and AI company rather than a conventional car maker. Before Trump’s re-election, the path to making Musk’s robotaxi dream possible was seen as facing more regulatory roadblocks; Companies like Alphabet’s (GOOG; GOOGL) Waymo and GM’s Cruise have faced significant scrutiny from safety officials.

Musk’s influence with Trump, however, could help clear the path for Tesla. “The golden path for Tesla around Cybercabs and autonomous is now within reach with an emboldened Trump/Musk strategic alliance playing out in real time,” wrote Wedbush analysts.