Why Tesla now needs the EV tax credit that Musk once said should go away
It wasn't long ago that Tesla CEO Elon Musk was advocating for ending the $7,500 tax credit for buyers of electric vehicles.
'Take away the subsidies. It will only help Tesla,' he said in a post on his social media platform X last year, adding 'Also remove the subsidies from all industries!'
But now, with House budget and tax bill known as the 'big, beautiful bill' proposing to end that tax credit, he and Tesla are suddenly arguing for the continuation of those same credits as the Senate debates its own version of the bill.
'Abruptly ending the energy tax credits would threaten America's energy independence and the reliability of our grid' said Tesla's solar power unit in its own post on X late last month.
'There is no change to tax incentives for oil & gas, just EV/solar,' Musk said in a follow-up post.
The turnabout may have to do with the recent financial troubles at Tesla. Many experts believed that getting rid of the EV tax credit would hurt legacy automakers, which continue to lose money on their EV operations, more than it would hurt Tesla. But Tesla's sales took a nosedive this year, and it needs the credits to maintain buyer demand.
The battle over EV tax credits, and Musk's broader opposition to the Republicans' budget and taxation bill, has caused a major split between President Donald Trump and Musk – a member of the administration's inner circle as recently as last week. The outcome could endanger the key legislative priority of Trump and Republicans. It could also affect the finances of the beleaguered Tesla.
Trump and House Speaker Mike Johnson have both suggested that the loss of federal support for EV's is driving Musk's opposition to the bill.
'Elon and I had a great relationship, I don't know if we will anymore,' Trump told reporters Thursday. 'I am very disappointed. Elon knew the inner workings of this bill… all of a sudden he had a problem and he only developed the problem after he found out we had to cut the EV mandate.'
Despite Trump's reference to an EV mandate, there has never been a federal rule requiring Americans buy EVs rather than gasoline-powered cars. But the Biden administration did pass the $7,500 EV tax credit in an effort to spur demand for EVs.
Musk immediately denied removal of the EV tax credit was the reason for his opposition to the bill.
'Keep the EV/solar incentive cuts in the bill, even though no oil & gas subsidies are touched (very unfair!!), but ditch the MOUNTAIN of DISGUSTING PORK in the bill,' he posted on X shortly after Trump's remarks.
Tesla shares (TSLA) fell 14% following the exchange.
Musk has focused most of his criticism on how the domestic policy bill would balloon the deficit. However, he is also no longer is arguing that ending the EV tax credit would be good for Tesla.
Tesla did not respond to a request for comment. However, Musk's shift on the EV tax credit likely reflects changes at Tesla since late last year.
Backlash to Musk's political activities played a major role in the company's recent sales troubles, including its first drop in annual sales in 2024 and its biggest ever drop in its sales during the first three months of the year. That resulted in a 71% plunge in net income in the first quarter.
While the $7,500 EV tax credit goes to car buyers, it indirectly benefits EV makers by increasing demand. When an earlier version was phased out in 2019, Tesla was forced to cut prices to keep buyers interested.
It's not just Musk who changed his opinion on the credit's important to Tesla. The same analysts who once believed removing the EV tax credit would help Tesla are now concerned over its loss.
In a note to clients the day after the election, Garrett Nelson, an analyst for CFRA Research, wrote that ending the credit 'will widen Tesla's competitive moat by making competing EV models even more uneconomic, as we believe (Tesla) is the only profitable manufacturer of EVs.'
But now, Nelson is expressing worry over Tesla's value if the credits go away.
'Our view is the 'Big Beautiful Bill' would be a net negative for Tesla, as tax credits for EVs, energy storage and solar would be going away,' Nelson said in response to questions from CNN. 'That, and ongoing EV market share losses in China and Europe, are some of the primary reasons why we downgraded the stock in April.'
Still, despite cutting his price target for Tesla, Nelson still has a buy recommendation on Tesla shares, as does Dan Ives, another Tesla bull. The tech analyst for Wedbush Securities said the change in finances at Tesla make the tax credits more important than in the past.
'Musk has definitely changed his tune from earlier on this,' Ives told CNN. 'The reality is it will hurt Tesla less than other EV makers, but it will still hurt. And Tesla needs all of the demand help it can get.'
Under current bill language, the tax credit remains in place for upstart EV makers like Rivian and Lucid but goes away for Tesla and most legacy automakers, said John Murphy, auto analyst at Bank of America. But he said the greatest challenge for Tesla is that demand for EV among American buyers appears to have stalled.
'I think 8% market share might be the high water mark for EV,' he said at a presentation Wedneday, speaking about overall demand for electric vehicles in the US market. Because of that, and the lack of new Tesla models, especially a lower-priced version that had been promised, 'I think (Musk) is going to be challenged to grow volume.'
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