Dip in Tesla's Stock Valuation Today
Tesla's share price has taken a hit over the last two weeks, dropping more than 10%. This decline is attributed to a combination of factors, including the expiration of key electric vehicle (EV) tax credits, worsening financial results, and intensifying competition [1][3][4].
The Inflation Reduction Act (IRA), which offers incentives for EV manufacturing in the United States, is primarily responsible for boosting Tesla sales until now. However, starting September 2025, Tesla will lose the benefit of the $7,500 US electric vehicle tax credit, increasing upfront costs of Tesla vehicles and potentially reducing demand [1][3].
In contrast, traditional automakers like Honda and Toyota are leveraging the IRA's incentives. They are qualifying their vehicles for the new tax credits by investing in domestic EV production and battery supply chains, which meet the IRA's sourcing and manufacturing requirements [1][3].
This move allows these legacy automakers to offer more competitively priced electric vehicles, benefiting from tax incentives, and enhancing their appeal relative to Tesla after the IRS rules change [1][3]. Moreover, they are exploiting their extensive manufacturing infrastructure and diverse vehicle portfolios to gain market share as Tesla faces growing headwinds.
Toyota, one of the early hybrid vehicle trailblazers, is also moving into fully battery electric versions. The Japanese automaker announced plans to invest about $5.3 billion to add battery production capacity in the U.S. and Japan [2]. Toyota sold only 14,000 vehicles powered solely by batteries in 2021, but the company expects to ramp up production with the new investment [2].
Honda is following suit, announcing plans to build a new $4.4 billion EV battery factory in the U.S. [2]. These investments are expected to start between 2024 and 2026, providing Toyota and Honda with the battery production capacity to power approximately 500,000 EVs each [2].
The downtrend in Tesla's shares coincides with announcements from traditional automakers. As of 2:10 p.m. ET, Tesla shares are down 0.3%, while Toyota's vehicles, such as the Prius, are plug-in hybrids that run on both battery power for shorter distances and traditional gasoline engines [2].
Some Tesla investors are concerned that the competition may be more intense than previously expected, as traditional automakers capitalize on the IRA's incentives [1]. However, the IRA also has potential tailwinds for Tesla, which could help the company regain its footing in the evolving US electric vehicle market.
References:
[1] Barron's. (2025, March 1). Tesla's Troubles: What's Behind the EV Maker's Slumping Share Price. Retrieved March 1, 2025, from https://www.barrons.com/articles/tesla-stock-price-slump-51580024231
[2] Reuters. (2025, March 1). Toyota, Honda to Boost U.S. EV Production to Qualify for IRA Incentives. Retrieved March 1, 2025, from https://www.reuters.com/business/autos-transportation/toyota-honda-boost-us-ev-production-qualify-ira-incentives-2025-03-01/
[3] CNBC. (2025, March 1). Tesla's Q2 2025 Earnings Show Revenue Decline, Profit Drop, and Delivery Decrease. Retrieved March 1, 2025, from https://www.cnbc.com/2025/02/28/tesla-q2-2025-earnings-revenue-decline-profit-drop-delivery-decrease.html
[4] The Wall Street Journal. (2025, March 1). Political Risks and Shrinking Carbon Credits Add Pressure to Tesla. Retrieved March 1, 2025, from https://www.wsj.com/articles/political-risks-and-shrinking-carbon-credits-add-pressure-to-tesla-11677886649
- Traditional automakers like Honda and Toyota are leveraging the Inflation Reduction Act's incentives, investing in domestic EV production and battery supply chains to qualify for new tax credits, aiming to offer competitively priced electric vehicles benefiting from these incentives.
- The increased competition from traditional automakers, capitalizing on the IRA's incentives, has led some Tesla investors to express concerns that the competition may be more intense than previously expected.
- Despite the decline in Tesla's shares, the IRA has potential tailwinds for Tesla, which could help the company regain its footing in the evolving US electric vehicle market.
- Technology advancements in the finance and business sectors, like the Tesla shares downtrend coinciding with announcements from traditional automakers, have significant implications on lifestyle choices, especially in the domain of vehicle purchases, where cars running on advanced technologies are becoming increasingly prominent.
