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Tesla’s Latest Bull Story – Inflation Reduction Act Restores Federal Tax Credit

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Updated 3 Aug 2022

Key points:

  • The Inflation Reduction Act makes Tesla cars eligible for the Federal tax credit again
  • $7,500 off a Model 3 is a substantial inventive
  • Whether the law will pass is unknown but it seem likely

There's a new bull story for Tesla (NASDAQ: TSLA) stock and this one does actually have a certain power behind it. This new Inflation Reduction Act that the Senate is finalising – well, maybe they are, maybe it won't pass – restores the Federal tax credit to buyers of TSLA products. That could produce a substantial boost to sales inside the US – most especially of lower priced models and to lower income families. This is also rather unexpected so it could indeed have a substantial effect upon the TSLA stock price.

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It's possible to be more than a little cynical about Tesla – something that has lost some people a lot of money of course. For while some of the stories about what might happen have been, how shall we say, a little optimistic it is also true that the company has grown into being a major, proper, global manufacturer. Being bear TSLA hasn't been a happy experience over the years, even as there have been time periods when that was the correct stance to have.

However, this is potentially real news, something that could significantly flow through to the bottom line. But the effect is going to be limited to the US and to lower income families there.

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Also Read: How To Buy Tesla Shares

This is all part of the absurdity of American politics in an election year, of course it is. But we should trade the world as it is, that's the way to make money, not as it should or might be. The US has long had an EV Federal tax credit of $7,500. The original aim was to get manufacturers over the hump of being small scale – to allow them to compete with ICE manufacturers and their economies of scale. Therefore the tax credit was limited to the first 200,000 vehicles from a specific manufacturer.

TSLA blew through this limit years ago. The Federal tax credit was a great boon to them in the early days but it's years since they've been able to benefit. The new Inflation Protection Act now changes that tax credit scheme. Politics has noticed that the big and American EV manufacturers no longer benefit from the credit – but the smaller and insurgent foreigners perhaps do. This cannot be allowed to stand of course.

So, in that Inflation Reduction Act the rules are changed. The volume limit per manufacturer is gone, so Tesla's EVs qualify again. As long as they're under $80,000 which of course the Model 3 most certainly is. Also, the buyers have to earn under $150k a year – or $300k for couples. Of course the law hasn't been passed yet but it is the big one for the coming election campaign. So we can expect the Ds to do their utmost to actually pass it.

This would change the cost benefit analysis for a Model 3 at least, and substantially, for American purchasers. We might well see a boost in TSLA stock as this news filters through.