Guggenheim Reduces Tesla Stock Due to Tax Credit Objectives and China Demand Worries

Tesla Stock


Guggenheim has lowered its projections for Tesla (NASDAQ:TSLA) because the company expects a lower number of its models to be eligible for tax credits under the Inflation Reduction Act. As a result, Tesla stock declined. 

On Thursday, the Internal Revenue Service (IRS) issued new standards for automobiles that qualify for the tax credit of $7,500. The price of eligible automobiles and sport utility vehicles is capped at a certain amount, and the tax credit provisions stipulate that the vehicles must have been produced in North America. The latter may have a maximum MSRP of $55 thousand, whilst the former can have an MSRP of up to $80 thousand.

Guggenheim identified the price limit as a factor that might affect Tesla stock in general and its Model Y in particular.

“To summarize, the disclosure is not favourable for TSLA since the price of the majority of Model Ys will be capped at $55,000. Because of this, only the seven-seat version of the Model Y will be eligible for the $80,000 price ceiling. While this will make the car more appealing, the company’s analysts feel it represents a tiny fraction of total sales in the United States. “We originally predicted that 60–70% of TSLA US units would qualify for EV sales credits based on current pricing. However, with updated guidance, that figure is expected to be closer to 10%–20% absent a price decrease on the Model 3 LR.” 

Without a doubt, Tesla (TSLA) will continue to take advantage of the tax breaks for manufacturers that are offered by the IRA. Guggenheim believes that over the next several years, Tesla stock will be a “significant beneficiary” of these credits.

However, to account for the reduced number of available tax credits for customers, the company’s analysts have adjusted their projections for the near future. This demand dynamic contributes to more considerable worries over demand dynamics in 2023, particularly in China.

The analysts concluded: “We are decreasing our 2022 and 2023 projections reflecting the latest IRS advice on IRA eligibility, further weakening China demand patterns, and price cuts now embedded in all countries” (before, price cuts were exclusively entrenched in China). “We continue to maintain a neutral rating; however, we feel that the risk/reward balance tilts toward the negative in the short term as consensus forecasts for 2023 are decreased and investors re-adjust their expectations for a weaker medium- to the long-term growth outlook,”

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