What is in the Inflation Reduction Act?
The Inflation Reduction Act was signed on August 16, 2022 by President Biden in the United States. Consumers can receive a $7,500 tax credit under the Inflation Reduction Act for EVs that cost up to $80,000 on trucks and $55,000 for sedans. Buyers must have a household income of no more than $150,000 for single people or $300,000 for married couples in order to be eligible for the tax credit. Only electric vehicles made in North America are eligible for tax credit.
According to the CBO score, the proposed legislation would lower the deficit by $305 billion from 2018 through 2031, with over $100 billion in net savings and an additional $200 billion in gross income from improved tax compliance.
Climate tax credits and expanded energy would almost match the level of new tax hikes under the plan, which would also result in a tiny net tax reduction of about $2 billion annually once fully phased in. Over a ten-year period, the legislation would bring in nearly $300 billion in net revenue, primarily from increased tax compliance and the knock-on effects of higher wages due to lower health premiums — both of which are not tax increases — as well as early revenue collection as businesses retime some payments.
So, should the IRA affect your decision to invest in Tesla? Read on to learn more about the Act and the current performance of Tesla to determine if you should invest in Tesla stock at the moment.
Misnamed Act: Focuses on Climate Change
President Biden completed a significant effort to address climate change, health care costs, the development of clean (and not-so-clean) energy, minimum corporate income taxes, and taxes on financial transactions carried out by some of America’s wealthiest businesses and individuals by signing the Inflation Reduction Act or IRA of 2022 into law. The IRA is a significant legislative move by any standard (the new law is more than 700 pages lengthy and permits spending of more than $700 billion) and by the scope of implicit federal action.
The misnamed measure will not reduce inflation in the near future, according to a review of the two most thorough analyses of the issue: one from the Congressional Budget Office, and another by the Penn-Wharton Institute at the University of Pennsylvania. According to the Penn-Wharton summary, the effect on inflation appears statistically equivalent to zero for both estimates.
EV are the Clear Beneficiaries of the Act
The IRA, which includes additional funding to fight global warming and promote sustainable energy, was just passed, making the future of electric vehicles even more promising. Seth Goldstein, an equities strategist and the chair of the EV committee at Morningstar, revealed his predictions for EV participants. The IRA should increase interest in EVs or plug-in hybrids, which should be advantageous for the whole EV supply chain.
However, a more significant percentage of battery components, such as nickel and lithium, must come from the United States and its free trade partners. Every EV requires lithium. Since Lithium Americas LAC is developing the greatest lithium source in North America, Goldstein sees them as among the biggest winners. Other lithium producers with projects in North America and Australia, such as Livent LTHM and Albemarle ALB, should also gain.
Goldstein believes suppliers to the automotive engine and electronics industries will benefit further upstream greatly. More battery electric and plug-in hybrid cars should be produced, as these markets are where BorgWarner BWA can excel thanks to its best-in-class powertrain innovations. He further explains that 5% of new cars sold worldwide last year were electric vehicles.
He predicts that the adoption rate and total EV sales will increase this year. More consumers will genuinely contemplate purchasing an EV when it becomes more affordable and functionally comparable to a vehicle powered by an internal combustion engine. Additionally, when more EVs are made available to consumers, and more EVs are sold, both Tesla (TSLA) and other established manufacturers, as well as newcomers, will offer additional EV models.
Even if there were a global recession, EV sales would probably either stay the same or even increase as more models switch from conventional internal combustion engines to EVs. This is because the long-term switch of ICEs to EVs is experiencing significant secular growth. The switch to EVs won’t result in an increase in profits for the automakers. But there is a genuine chance to increase market share and profit margins over time in companies that produce lithium, semiconductors, specialty chemicals, or automobile components. As a result, the EV market is in a lot better position than possibly the majority of the remainder of the world market.
The bill’s updated EV tax credit has several top-level provisions that will probably pave the way for even more American-made EVs in the near future. In the short term, though, this will take away money from people looking to buy EVs or plug-in hybrids and severely restrict the variety of available options. The tax credit excludes more expensive and luxurious EVs with a ceiling of $80,000 on SUVs, vans, and pickups and a limit of $55,000 on passenger vehicles. In addition, a total adjusted gross income or AGI of $150,000 for single taxpayers, $225,000 for heads of families and $300,000 for filing jointly is also established.
The following are the EV that currently qualify but are too expensive to meet the new price caps for credit:
- Audi E-Tron GT
- Genesis G80 Electrified
- BMW iX
- Lucid Air
- GMC Hummer EV
- Mercedes-Benz EQS
- lMercedes-Benz EQE
- Rivian R1T
- Rivian R1S
- Porsche Taycan
How Does the New Act Help Tesla?
If you are wondering how to invest in Tesla, note that Tesla should mostly likely benefit from the IRA, claims Wolfe Research. Wolfe joined the list of brokerages who have recently turned optimistic on the EV firm by upgrading TSLA shares and raising its target price. Previously, US federal tax credits of up to $7,500 were available to EV buyers.
According to analyst Rod Lache, the IRA has made a significant difference in the strength of Tesla’s mid-decade earnings potential. In fact, TSLA might be the only OEM in a position to sell all of the vehicles eligible for the $7,500 Purchase Credit in the United States before the middle of the decade. Notably, compared to other automakers, Tesla has significantly greater vertical integration. For example, it has been attempting to ensure supplies of vital battery metals while also manufacturing numerous components internally.
All new sedans under $55,000 and all new SUVs under $80,000 are eligible for upto $7,500 tax credit on electric vehicles under the misleadingly titled Inflation Reduction Act. These tax credits will take effect on January 1, 2023, and last until 2032. If you are looking into how to invest in Tesla stock, you might want to consider how the Inflation Reduction Act may benefit Tesla in the United States. Tax credit cap for automakers after they hit 200,000 EVs sold is eliminated, making GM, Tesla and Toyota once again eligible. The manufacturer estimated retail price of a car serves as the basis for tax credit eligibility (MSRP). The MSRP for the 2022 Tesla Model 3 sedan is $46,990, while the MSRP for the 2022 Tesla Model Y SUV is $65,990. Additionally, Tesla has outstanding productivity levels.
According to Musk, Tesla produced more than three million automobiles on August 14, 2022. InsideEEVs asserts that the Freemont, California, facility for Tesla can create one car every minute, or 1,640 automobiles daily. Production in Fremont includes 500,000 Model 3 and Model Y cars that qualify for said tax credit.
Tesla’s Earnings Performance Already Robust
If you might be planning to invest in Tesla stock, note that as of 9/9/22, the performance of Tesla Stock (down 25% YTD) was similar to that of the NASDAQ 100 (flat 24% YTD). The increase in car deliveries, rise in the average selling price for automobiles, and expansion in other business areas are all responsible for Tesla’s revenue growth (with an EPS totalling $0.65) for the July quarter in 2022.
The firm reiterated that it still has enough cash on hand to self-fund its product pipeline and capacity growth plans in light of its excellent financial position. The electric car manufacturer will need a lot of money to implement these objectives, therefore, there are plenty of prospects for reinvestment. Concerning the business’s capacity-expansion plans, Tesla stated that it expects to increase its annualized delivery volume by approximately 50% yearly over “a multi-year horizon” by ramping up production at its factories in Fremont and Shanghai, as well as at its recently opened factories in Texas and Berlin.
Tesla Stock: Is it a BUY?
Is it a good time to invest in Tesla? Tesla (TSLA 3.60%), a manufacturer of electric vehicles, released solid second-quarter numbers this afternoon, with a 42% increase in revenue. Considering the difficult global logistics and supply chain problems automotive firms are facing, the performance was excellent. Notably, Tesla’s second-quarter profit outperformed forecasts.
Source: https://www.wsj.com/market-data/quotes/TSLA/research-ratings
You must do your research before investing in Tesla, or any other stocks in the US energy sector. Take a look at this video by Stockal to learn more about the energy industry and its future, so that it is easier for you to make an informed decision.
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