Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Tesla TSLA CEO Elon Musk and US President Donald Trump are publicly feuding, issuing statements on their respective social media platforms. Musk is not in favor of the US budget that Trump hopes to pass. Tesla shares were down over 14% on June 5.
Why it matters: The US spending bill includes the expiration of the $7,500 electric vehicle subsidy at the end of 2025, seven years before it was previously set to expire.
All Tesla vehicles sold in the US currently qualify for the subsidy, so Tesla could face lower sales volumes when the subsidy’s expiration raises prices for consumers.Trump also threatened to cancel all of Musk’s government contracts and subsidies. This would likely affect Musk’s SpaceX more than Tesla. However, if Trump were to retaliate against Musk, Tesla might be excluded from the ability to sell emissions credits.
The bottom line: For now, we maintain our $250 per share fair value estimate for narrow-moat Tesla. Before June 5’s selloff, the firm was overvalued, in 2-star territory. At current prices, we view Tesla as fairly valued, with the stock trading less than 15% above our fair value estimate and in 3-star territory.
If the early EV subsidy expiration is enacted into law, it would likely weigh on Tesla’s deliveries in 2026. We expect this would affect all EV producers through lower sales volumes, similar to the declines after the removal of EV subsidies in other markets.Longer term, we do not view subsidies as a growth driver of EVs. Once long-range EVs reach cost parity with internal combustion engines and there is adequate fast charging built along highways and throughout cities, consumer demand and not subsidies will drive adoption.
Big picture: The subsidy expiration could weigh on Tesla’s deliveries in 2026. However, over the long term, we think Tesla’s autonomous driving software could prove to be a differentiator that could lead consumers to choose its vehicles.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
