How Tesla Could Suffer Under the Republican Tax Plan

November 2, 2017, 5:41 PM UTC

With the reveal of the Republican tax plan Thursday, companies and households alike are trying to figure out how the changes will impact their bottom line. One company in particular that might have reason to fret: Elon Musk’s Tesla.

One item on the tax reform’s cutting block, the electric vehicle (EV) tax credit, is a big incentive for automakers like Tesla and their customers to do business together. And the proposed cut couldn’t come at a worse time for Tesla stock—with the Tesla Model 3 prepared to start shipping in higher quantities, consumers will need to decide if they want one at a higher price, should their car arrive after the GOP tax plan passes through Congress (assuming it does indeed pass).

As currently constituted, the EV tax credit runs from $2,500 to $7,500 per vehicle, and is available for plug-in hybrids or electrified vehicles, like Tesla’s products, the Nissan Leaf, and GM’s Chevy Bolt. The size of the tax credit depends on the size of the car’s battery. Automakers have factored the amount of these tax credits into their pricing, and have been relying on the government program to make electric vehicles more affordable and competitive with gas-only cars.

To date, incentives like the electric vehicle tax credit been largely successful in spurring both development of and consumer interest in the new automotive technology. For example, GM recently announced that it will offer 20 all-electric vehicles by 2023. And research by the International Energy Agency has shown that more than 2 million electric vehicles are currently on the road worldwide, up from 1 million in 2015.

Killing the tax credit likely wouldn’t immediately cause car companies to abandon electric vehicles, but it could cause an huge drop in interest from the public, since the financial incentive is a significant draw for buyers. That, in turn, could put a hit on Tesla (TSLA) and GM (GM) stock.