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William Blair downgraded Tesla (NASDAQ:TSLA) on Monday to a Market Perform rating after having it lined up at Outperform.
Analyst Jed Dorsheimer pointed to the elimination of the $7,500 tax credit for the purchase or lease of a new electric vehicle in the Republican tax and spending bill as a clear negative for Tesla (NASDAQ:TSLA).
However, Dorsheimer also noted that investors should weigh the impact of the bill’s cut on fines that automakers would have faced under Corporate Average Fuel Economy standards. He highlighted that the elimination requires a reset in expectations.
“While the $7,500 tax credit is likely to affect demand, the combination of a demand headwind and over $2 billion in profit from regulatory credits at risk may be too much for investors to bear,” advised Dorsheimer. “Unlike the EV tax credit, we expect the reduction in regulatory credit revenue to result in a direct hit to profitability, prompting yet another across-the-board reset to Street models,” he added.
Dorsheimer expects the removal of the EV tax credit to lead to an increase in unit volume in Q3 before pressuring Q4 sales and margins. The firm also thinks lower factory utilization and pricing concessions could cut into Tesla’s Q4 profitability.
As far as Elon Musk’s political endeavors, Dorsheimer warned TSLA investors may be tiring of the distraction.
Shares of Tesla (TSLA) were down 6.4% in the Monday premarket session.