Ever since Elon Musk announced his support for Donald Trump – a politician known for his dealings with oil executives and his denial of the climate crisis – the world has been scratching its head.
For all his personal grievances about the “woke mind virus,” Musk is still the CEO of Tesla and a pioneer in electric vehicles. On the surface, a second Trump presidency would be bad news for companies hoping to wean the country off fossil fuels. But during a call with Tesla investors on Tuesday, Musk’s reasons for his support became crystal clear.
Rather than worrying about transitioning society to an all-electric future, Musk is more concerned about maintaining Tesla’s dominant position in the EV market. The Inflation Reduction Act, one of President Joe Biden’s defining legislative achievements, helped traditional automakers enter the EV market in earnest. As competition in the market increased, Tesla began cutting prices, culminating in an industry-wide price war that Tesla isn’t winning. Over the past year, Tesla’s profits have fallen 45% and the company’s market share has shrunk. Kelley Blue Book said that in the second quarter of this year, overall EV sales in the U.S. rose, but Tesla’s share of those sales fell below 50% for the first time in the company’s history. It’s a steep drop considering Tesla’s share of the EV market used to be as high as 80%. Without a new model to sell (unless you count the Cybertruck for some reason) and with even more cutthroat competition in China, Tesla is under pressure globally.
Musk opened the company’s investor call by saying that the wave of competition that was killing profits and shrinking market share would pass, but he didn’t offer a reason. When asked if he was worried about Trump revoking the IRA, Musk hinted. He told investors the move would be “devastating” for Tesla’s competitors, but less so for Tesla — in fact, it would be “good for Tesla in the long run,” he said. In essence, it was an admission that Musk’s best hope is for Trump to return to the White House and dismantle the regulatory regime that has encouraged traditional automakers to enter the EV market. Tesla’s best hope is for U.S. traditional automakers like GM and Ford to stay on the sidelines.
The irony is that while Musk may want to see the IRA go, Tesla is still making money from government tax credits that predate the law. These are credits that EV makers can sell to internal combustion engine automakers to offset the latter’s carbon emissions. The slower traditional automakers get into the EV business, the more Tesla can sell. And sell they are: Tesla made a life-saving $890 million from these credits last quarter, doubling its revenue from the previous quarter. Musk is happy to accept government intervention, but only if it benefits Tesla and not its competitors.
Musk and Trump have the same EV policy goal: tear up Biden’s EV regulatory infrastructure and go back to the old structure. Or maybe — if Musk’s money has some say in the White House — let him craft some new rules that work for him. What Musk and Trump seem to have most in common is that they’re both committed to law and order — as long as they’re writing the laws and giving the orders.
A quarter fantasy
It’s easy to see why Tesla is losing its dominant edge: It’s moving too slowly. Its last new model, the Model Y, came out in 2019. Since then, the company has come under pressure from competitors for the first time. In China, it’s battling state-backed automakers that are churning out cutting-edge models at low prices. In the U.S., Legacy Auto is starting to rally to offer consumers more variety and—let’s face it—an alternative to Musk’s cult of personality.
In order to maintain its market position, Tesla began cutting prices in 2023. That was the beginning of the global EV price war. Critics were not happy about it, but Musk assured the Tesla community that this was the only strategy to save the company. By the third quarter of 2023, the price war was starting to ravage Tesla’s balance sheet. When the company reported results in October, it fell far short of expectations for revenue, vehicle deliveries and free cash flow, which fell to $848 million from $3.4 billion a year earlier. Gross margins — a measure of the company’s profitability after expenses — continued to shrink. For investors, it was a return to the company’s dark days. Tesla posted its first annual profit in 2020 and was supposedly on a stable path from that day on. The sudden financial downturn caused Wall Street PTSD — Tesla’s stock fell by more than 40% in the following six months.
Musk stopped the bleeding in April by doing what he does best: promoting a world of fantastic innovations the company hasn’t built yet. Tesla, he said, isn’t a car company; it’s an AI company. He promised autonomous robotaxis in August, never mind that Musk has been promising the robotaxi for about a decade. He said the company was making progress on a new humanoid robot called Optimus — never mind that when Tesla unveiled Optimus, it was a person dancing in a robot costume, and Tesla still won’t say what tasks it can perform. Musk glazed over the product the world really wants to see, a lower-cost Tesla with a price tag of about $25,000 to $30,000. Without giving more details, he said those models would roll out of factories in the first half of 2025, never mind that Musk has been saying as much since 2018. Musk pulled absolutely every trick he’s ever tried in recent years to regain Wall Street’s trust. And it worked. Despite warning signs about the company’s ability to deliver, Wall Street seemed confident that Musk would pull off a miraculous turnaround. Stocks soared.
Which brings us to now, and Tesla’s second-quarter earnings report. The results showed that — AI company or not — Tesla is still hurting from competition in the new EV market. The price war is still ravaging operating margins, which have fallen to 6.3% from 9.6% a year ago. And revenue from auto sales fell 7% from the same period last year, even as traditional automakers announced a slowdown in their EV rollouts due to the price war and lack of demand. That’s why the IRA in Musk’s fantastic future is being revoked and, as he put it, “is devastating to our competitors and to Tesla.” He went on to say that investors shouldn’t view Tesla as a car company with competitors of car companies at all.
“The value of Tesla is overwhelmingly autonomy,” he said. “These other things, I think, are not relative to autonomy in any way.”
This after he announced that Tesla’s robotaxi launch in August had been delayed until October, if you can believe that.
Capitalism for me and not for you
Musk is looking for ways to buy Tesla time. Trump has promised to abolish Biden’s IRA, a law that created tax breaks for new electric car models. Musk would like to see those benefits eliminated — not because they disrupt a fair market or because he opposes government aid, but because they help his competitors more than they help him. That’s not to say Musk’s company is giving up the credits; it just has to work harder to get them because its fleet is getting older. Tesla told investors it would change the trim levels of its Model 3 to make more cars eligible for IRA money. But of course, it still has to sell those cars to get that money, and that’s a lot harder to do when your competitors can come out with newer, fresher models. Rather than competing on quality, Musk wants to bend the rules to his advantage.
While Musk may not like the IRA, there are other rules Tesla makes money from that don’t require the company to do anything at all. They work much better, though, when Tesla’s competitors are selling fewer cars. One is zero-emission vehicle credits: A growing number of states require automakers to make a certain percentage of their vehicles zero-emission or face a fine. If a company doesn’t meet that threshold, it can buy ZEV credits from an automaker that’s making cars with radically reduced emissions, like an EV maker. Because Tesla is a pure-play EV company, it has a lot of extra ZEV credits to sell to companies that are still making gas-powered cars. It’s a lucrative business for Tesla: ZEV credit sales made up 68% of the company’s $1.3 billion in free cash flow last quarter. Of course, if automakers are selling their own EVs and offsetting their own carbon emissions, they don’t have to buy as many credits from Tesla. The source of free cash is drying up, and Tesla has to figure out a way to sell more cars.
Trump hasn’t said anything about ZEV credits. But the Heritage Foundation’s Project 2025 plan, which serves as a possible template for a second Trump administration, proposes eliminating government subsidies for electric vehicles and lowering fuel economy standards for internal combustion engine cars. Musk likely figures that the conservative super PAC he contributes $45 million a month to can siphon off some of that for Tesla while also eliminating the IRA incentives that make life harder. During Tesla’s quarterly earnings call, Chief Financial Officer Vaibhav Taneja took a moment for a bit of patriotism, saying that Tesla prides itself on being the company “with the most cars made in America.” Taneja can say “USA, USA, USA” all he wants, but Tesla’s Shanghai factory became the linchpin of the company after its opening saved the company from bankruptcy in 2019. It’s odd to hear that kind of patriotism during a Tesla conversation. Musk typically praises China’s leaders.
But Trump presents Tesla with a unique opportunity in the U.S. Musk knows he has to slow down the competition by any means necessary. Maintaining Tesla’s market position is critical until he can come up with another product that people will actually want to buy. If that means backing someone who’s going to jeopardize the global climate-saving agenda, so be it. At some point, Tesla stopped being about the world and became about Elon — or maybe it always was, and now that the pressure is on, there’s no hiding.
Linette Lopez is a senior correspondent at Business Insider.
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