Despite his personal frustrations with the “woke mind virus,” Musk remains CEO of Tesla and the electric car pioneer. On the surface, a Trump presidency would be bad for a company trying to move away from fossil fuels. But during a conference call with Tesla investors on Tuesday, Musk's reasons for supporting Tesla became abundantly clear.
Musk is primarily concerned with maintaining Tesla's dominant position in the EV market, rather than worrying about society moving toward an all-electric future. One of President Joe Biden's defining legislative achievements, the Inflation Control Act, helped traditional automakers get serious about getting into the EV game. As market competition intensified, Tesla began slashing prices, leading to an industry-wide price war that Tesla hasn't won. Over the past year, Tesla's profits have fallen 45% and the company's market share has ebbed. In the second quarter of this year, overall EV sales in the U.S. increased, but Tesla's share of those sales fell below 50% for the first time in the company's history, according to Kelley Blue Book. That's a steep drop considering Tesla's share of the EV market once reached as much as 80%. With no new models to sell (except for the Cybertruck, for some reason) and facing even tougher competition in China, Tesla is under pressure all over the world.
Musk opened the company's investor call by saying that the wave of competition that is eating away at profits and eroding market share will pass, but he didn't say why. When asked if he was worried that Trump would eliminate the IRA, Musk played his cards right. He told investors that the move would be “devastating” for Tesla's competitors, but not so much for Tesla. In fact, he said, it would be good for Tesla “in the long run.” In essence, this is an admission that Musk's biggest 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. What's best for Tesla is for traditional U.S. automakers like GM and Ford to stay on the sidelines.
Ironically, while Musk may want to get rid of his IRA, Tesla is still making a ton of money from government tax credits that predate the law, credits that EV makers can sell to ICE makers to offset the latter's carbon dioxide emissions. The slower traditional automakers get into EVs, the more credits Tesla can sell. And it's selling. Tesla saved $890 million in those credits last quarter, doubling from the quarter before that. Musk is happy to accept government intervention, but for Tesla's sake, not his competitors'.
Musk and Trump have the same policy goal when it comes to EVs: tear down Biden's EV regulatory infrastructure and revert to the old structure. Or, if Musk's money gives him a say in the White House, let him come up with new rules that suit him. What Musk and Trump have most in common is that they are both committed to law and order as far as making the laws and issuing the orders go.
A quarter of fantasy
The reason Tesla is losing its edge is clear: it's moving too slowly. Its latest model, the Model Y, was released in 2019. Since then, it has faced competitive pressure for the first time. In China, it's battling state-owned automakers that are building newer models cheaper. In the U.S., Legacy Auto is rallying its forces and offering consumers more variety and, frankly, an alternative to Musk's personality cult.
To maintain its market position, Tesla began to slash prices in 2023. This marked the beginning of a global EV price war. Critics pushed back, but Musk assured the Tesla community that this was the only strategy that would save the company. By the third quarter of 2023, the price war had begun to ravage Tesla's balance sheet. When the company reported earnings in October, revenue, vehicle deliveries, and free cash flow all fell far short of expectations, falling to $848 million from $3.4 billion the year before. Gross margins, a measure of profitability after costs, continued to shrink. For investors, this was a return to the company's dark days. Tesla had achieved its first annual profit in 2020 and was supposed to be on a stable trajectory from that day on. The sudden financial downturn triggered Wall Street's PTSD, and Tesla's stock price fell more than 40% in the six months that followed.
Musk has used every tactic he has deployed over the past few years to regain Wall Street's trust.
Musk tried to save the day in April the way he does best: touting a world of great innovations that the company has yet to realize. He said Tesla is not a car company, but an AI company. He promised self-driving robot taxis by August, never mind that they had been promising robot taxis for about a decade. He said the company is working on a new humanoid robot called Optimus, never mind that when Tesla unveiled Optimus, it was a man dancing in a robot costume, and that Tesla has yet to reveal what tasks Optimus can do. As for the product the world really wants to see: a cheaper Tesla that will sell for about $25,000 to $30,000, Musk turned a blind eye. Without going into details, he said that these models would start rolling out of factories in the first half of 2025. Musk has been making similar statements since 2018, but they were ignored. He used every trick he had played over the past few years to regain Wall Street's trust. And it worked. Despite warning signs about the company's ability to execute, Wall Street seemed confident that Musk could pull off a miracle turnaround. Stocks soared.
So, now we move to Tesla's second quarter earnings report. AI company or not, Tesla is still being stymied by new competition in the EV market. Price wars are still squeezing its operating margins, down to 6.3% from 9.6% a year ago. And price wars and lack of demand are driving auto sales revenues down 7% from the same period last year, even as traditional automakers announce they will slow down their EV rollouts. That's why in Musk's great future, the elimination of IRAs is, as he puts it, “devastating for competitors and for Tesla.” He went on to say that investors shouldn't even think of Tesla as a car company competing with car companies.
“Tesla's value is overwhelmingly autonomy,” he said. “I don't think the rest of it has anything to do with autonomy at all.”
Incredibly, this comes after he announced that Tesla's August robotaxi launch had been delayed until October.
Capitalism is for me, not for you
Musk is looking for ways to buy Tesla some time. Trump has joined in, promising to repeal Biden's IRAs. Musk wants these incentives eliminated, not because they distort a fair market or because he's against government aid, but because they help his competitors more than he does. This doesn't mean Musk's company is giving up these deductions, just that his fleet of cars is older and he has to do more work to qualify for them. Tesla told investors it will change the trim of its Model 3 so that more of its cars qualify for IRA funds. But of course, it has to sell those cars to get the cash, which is much harder when competitors can roll out newer, fresher models. Instead of competing on quality, Musk wants to bend the rules in his favor.
Musk may hate IRAs, but some of the regulations that Tesla makes money from don't require the company to do anything. But those regulations work much better when Tesla's competitors are selling fewer cars. That's the zero-emission vehicle credit. In a growing number of states, automakers must make a percentage of their vehicles zero-emission or face fines. Companies that don't meet that standard can buy ZEV credits from automakers that make cars with significantly reduced emissions, like EV makers. Because Tesla is a pure EV company, it has a ton of surplus ZEV credits that it can sell to companies that still churn out gasoline-powered cars. This business is lucrative for Tesla. Sales of ZEV credits accounted for 68% of the company's $1.3 billion free cash flow last quarter. Of course, if automakers sell their own EVs and offset their own carbon emissions, they don't need to buy so many credits from Tesla. The free money dries up, and Tesla has to think about how to sell more cars.
Musk is looking for ways to buy Tesla time, and one way to do that is to get Trump elected. Steve Granitz/FilmMagic via Getty Images
Trump hasn't said anything about ZEV credits. But the Heritage Foundation's Project 2025 plan, a potential template for a second Trump administration, proposes eliminating government subsidies for EVs and lowering fuel economy standards for internal combustion engine vehicles. Musk probably thinks that the conservative super PAC to which he donates $45 million a month can ease some of the burden on Tesla and eliminate the IRA incentives that make life difficult. During Tesla's quarterly earnings call, Chief Financial Officer Vaibhav Taneja showed a bit of patriotism, saying Tesla is proud to be the company that “produces the most American-made cars.” Taneja can say “USA, US, US” all he wants, but the Shanghai factory became the linchpin of Tesla's business after it opened in 2019 and saved the company from bankruptcy. It's odd to hear such patriotism on a Tesla earnings call. Musk always praises China's leaders.
But Trump is giving Tesla a unique opportunity in the US. Musk knows he needs to slow the competition by any means necessary. It's essential to maintain Tesla's market position until they can create another product that people are willing to buy. Even if that means supporting someone who will jeopardize the climate plan. At some point, Tesla stopped serving the world and started serving Elon. Or maybe it always was, but now the pressure is on and it's impossible to hide.
Lynette Lopez I'm a senior correspondent for Business Insider.
