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Tesla Might Suffer If Trump Weakens CAFE, Electric Subsidies

Tesla Might Suffer If Trump Weakens CAFE, Electric Subsidies.

If (ZEVC) were removed, for example, Tesla Motors would lose a major source of income”

Diluting CAFE Rules Though Would Help Auto Industry Profits.

Tesla Motors might find itself in trouble if a Trump administration relaxed fuel economy rules and electric car subsidies are weakened, while traditional U.S. auto manufacturers’ highly profitable gas-guzzlers would benefit, according to a report from BMI Research.

BMI Research said Tesla might find its Zero Emission Vehicle Credits (ZEVC) removed. Doubts over trade policy might inhibit some investment in factories by both U.S. and foreign manufacturers, but a “feel-good” factor from Trump supporters might give a short-term boost to sales in the U.S. If 2025 fuel economy rules are relaxed, this would also allow makers of big, high margin SUVs longer to make money.

During the campaign, Trump pledged to renegotiate the NAFTA free trade deal between Mexico, the U.S. and Canada. The Trump campaign has talked of a 35 per cent import tax on cars, trucks and parts made in Mexico.

BMI Research said in the report Trump had opposed the NAFTA deal which saw U.S. and other carmakers persuaded to build plants in Mexico and ship the vehicles back to the U.S. The Trans-Pacific Partnership is under pressure too.

Cautious
“The current trade situation will not change overnight and as such, we do not see massive immediate changes to production trends, but we can expect to see companies being more cautious about their North American investments, until more is known about the new administration’s trade plans and proposals for increasing domestic manufacturing. Although getting an extreme overhaul of NAFTA through Congress could present a challenge, the Republicans sweep of the Senate and House of Representatives will make the path smoother,” the report said. 

An overhaul of fuel economy regulations might hurt electric car maker Tesla Motors. The U.S. requires an average of 54.5 miles per U.S. gallon by 2025, but the rules are up for possible revision in 2018.

“Given Trump’s stance against regulation from federal agencies, and the Environmental Protection Agency (EPA) in particular, we expect fuel economy to become less of a priority. The timing of the election is also supportive of easing off on standards, as the EPA is currently conducting its mid-term evaluation of the economy goals proposed for the light vehicle market in 2025. If the new administration wants to move against the proposed standards, this is a convenient point at which to do so,” the report said.

This could be a big problem for Tesla.

“If (ZEVC) were removed, for example, Tesla Motors would lose a major source of income at a time when it is looking to ramp up its operations in order to launch the model 3,” the report said.

Rust belt feels good
BMI said the election of Trump might induce a feel-good factor in ‘rust belt’ states which voted for him and boost sales in the short term, but overall the market would weaken.

“We maintain our view that the U.S. light vehicle market will contract in 2017 as the rapid growth of previous years loses steam. However, our view that the Fed is unlikely to hike rates until at least 2017 given our expectation for a bear market in U.S. stocks, could provide some support, albeit marginal, to a vehicle market that has become increasingly reliant on credit,” the report said.   

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