Bipartisan lawmakers in Washington are planning to introduce a bill that will expand federal tax credits for buyers of electric vehicles (EV) – marking a potential watershed moment for electric automakers should the bill pass.
The existing EV driver discount ($7,500) phases out over the course of 15 months after an automaker has sold 200,000 electric cars. Tesla buyers, for example, just got burned by this condition as the tax benefit has now been halved to $3,750 as of January 1st, 2019. General Motors EV customers got the same treatment on April 1st.
But the new bill, named the “Driving America Forward Act”, looks to increase the discount for electric car shoppers. Automakers that exceed the 200,000-vehicle limit would be granted a $7,000 tax credit for the next 400,000 cars sold, shortening the “phase out” period to only 9 months.
“At a time when climate change is having a real effect on Michigan, today’s legislation is something we can do now to reduce emissions and combat carbon pollution,” said Michigan Senator Debbie Stabenow.
“Our bill will help create American jobs and cement Michigan’s status as an advanced manufacturing hub.”
Senators Gary Peters (D-Mich.), Lamar Alexander (R-Tenn.), Susan Collins (R-Maine.), and representatives Dan Kildee (D-Mich.) all support the bill as well, in what has been a rare display of bipartisan cooperation.
After Stabenow’s statement Wednesday morning, Tesla (NASDAQ: TSLA) shares rose over 1.6% from bullish investors who see the Driving America Forward Act as a major opportunity for electric automakers in the United States.
And though it might be easy these days to dismiss EVs as a small, niche product, the truth is that electric cars are starting to make their impact on the vehicle market. Demand for low-emission vehicles has risen greatly over the last decade, and since Tesla’s Model 3 hit the roads, more drivers want no-emission cars than ever before.
That means fewer toxic fumes, a smaller carbon footprint, and most of all, no paying at the pump.
Even outside of Tesla, other automakers would likely see a boost from this new bill as well, as all the major car companies have plans to produce electric vehicles over the next few years.
But Tesla, especially, stands to benefit greatly from the new bill.
“This would be a major shot in the arm for Tesla as this could be a much-needed potential catalyst for demand in the U.S.” remarked Dan Ives, a Wedbush analyst.
“Ultimately, while there are still hurdles to get this legislation passed, it would result in an additional 40,000 Tesla vehicles sold domestically in 2019 based on our estimates. After a tornado of bad news the last few months, this would finally be a positive data point for Musk & Co.”
It’s no secret that Tesla has had a rough 2019. While the market has been on a historic rally, TSLA shares have only declined for the year, down almost 17%.
And while new legislation could take a while to pass, investors might be ready to price-in the estimated 40,000-vehicle benefit right now.
Or in the near future, at the very least. It’s certainly something that Tesla investors would love to see as company shares now linger near the 2018 lows.
And if demand for EVs keeps growing at the current rate, I don’t see why the proposed Driving America Forward Act couldn’t spur TSLA on to a recovery, finally, after nearly two years of constant drama and production hiccups.
Musk seems ready to take that next step, and based on what we’ve been hearing out of Washington these days, it looks like the U.S. Government is ready to help. Investors who recognize that today could be in for a major windfall down the road.