Tesla's 2025 Crisis: Robotaxi to the Rescue? Wall Street's Secret Moves

US Inflation Reduction Act and Its Impact on Tesla

The US Inflation Reduction Act (IRA), a significant piece of legislation, is poised to impact electric car subsidies, particularly those benefiting Tesla. With the National Assembly scheduled for another reading, and a potential new budget in August, significant changes are on the horizon.

Reduced Subsidies for Electric Vehicles

The most immediate consequence is a reduction in the subsidy available for Tesla vehicles. Previously, consumers could save up to $7,500. Under the new regulations, this could decrease to around $4,000 for high-income earners. This information was reported by The Wall Street Journal and Reuters on July 1st, and has been included in the 2025 budget draft.

Musk's Reaction and Wall Street's Strategy

The potential subsidy cuts have angered Elon Musk, who believes they will negatively impact new energy companies. Wall Street, however, is reacting strategically, with some firms increasing their holdings of Tesla stock at the lower price, while others are quietly reducing their positions. The situation is fluid and complex.

Three Key Changes to Electric Vehicle Subsidies

The new budget proposes three key changes to the electric vehicle subsidy landscape:

1. Reduced Tax Credits: The initial $7,500 tax credit will no longer be universally available. Subsidies will be gradually reduced to around $4,000 for higher-income individuals.
2. Luxury Vehicle Exclusion: Subsidies will no longer apply to luxury electric vehicles, such as higher-end Tesla Model X and Model S configurations exceeding $55,000.
3. Battery Localization Requirements: A stricter requirement for battery localization, increasing from 50% to 70-75% sourcing within the US, which poses challenges for Tesla's Shanghai factory supplying North America.

Implications for Tesla

These changes pose several challenges for Tesla:

• Reduced Sales: Cutting subsidies by nearly half could deter middle-class families from purchasing Teslas.

• Profit Margin Pressure: Tesla's net profit margins, already declining, may face further pressure.

• Need for Cheaper Models: The subsidy cuts necessitate the introduction of the rumored "$20,000" Model 2 to compete with more affordable electric vehicles from competitors like BYD, Hyundai, and potentially Xiaomi.

• Robotaxi Reliance: Tesla may need to accelerate its Robotaxi plans to offset lost revenue from reduced vehicle sales.

Tesla's Potential Countermeasures

Despite the challenges, Tesla has a few strategies to leverage:

• Robotaxi Rollout: Musk plans to deploy 200,000 Robotaxis by 2026.

• Full Self-Driving (FSD) Subscription: Tesla is offering FSD Beta subscriptions on a quarterly basis, potentially bringing in recurring revenue from existing car owners.

• Energy Storage Business: Tesla's energy storage business is not impacted by IRA subsidies.

• Supercharger Network: Opening up the Supercharger network to other manufacturers like Ford and Rivian generates service fees.

Potential Roadblocks

• Regulatory Hurdles: The Robotaxi rollout faces significant regulatory hurdles, exemplified by the NHTSA's scrutiny of Cruise and Waymo. Public opinion regarding autonomous vehicles is also a risk.

• Competition: Increased competition in the affordable EV market, especially from BYD, threatens Tesla's market share.

• Robotaxi Delays: Delays in Robotaxi deployment will impact future earnings, especially if Model 2 launch is also delayed.

Institutional Investor Activity

Recent reports show mixed activity from institutional investors:

• Increasing Positions: ARK Invest and Baillie Gifford increased their Tesla holdings, citing the potential of FSD and Robotaxi.

• Reducing Positions: Millennium 2 Sigma reduced their hedge fund position on Tesla, anticipating volatility. Teachers Pension and CalPERS reduced their Tesla weighting in favor of AI and energy-saving ETFs.

Investor Strategies

• Short-Term: Short-term investors are likely to focus on potential sales declines and profit margin contractions.

• Long-Term: Long-term investors are betting on Tesla's success with Robotaxi and FSD.

Ultimately, the success of Tesla hinges on the rollout of Model 2 and the Robotaxi program. The company must transition from solely relying on car sales to diversifying into subscription and service-based revenue streams. How Musk adapts to this shifting landscape will determine Tesla's future.