Tesla Downgraded by William Blair Amid Tax Credit Elimination

On Monday, the investment firm William Blair downgraded its rating for Tesla (TSLA.US) from "outperform" to "market perform." This decision was driven by the recent Republican tax and spending bill, which eliminated a 7,500 USD tax credit for the purchase or lease of new electric vehicles. This change is expected to significantly impact Tesla's market outlook.

The analyst noted that while the elimination of the tax credit could dampen demand, it also reduces the potential regulatory credit profits that automakers might face under the Corporate Average Fuel Economy (CAFE) standards. This dual impact could make it difficult for investors to navigate the market's new expectations. The analyst emphasized that the reduction in regulatory credit income would directly affect Tesla's profitability, potentially leading to a comprehensive reassessment of the company's performance models by Wall Street analysts.

The analyst predicted that the removal of the electric vehicle tax credit could lead to an increase in Tesla's third-quarter sales but would put pressure on its fourth-quarter sales and profit margins. The firm also suggested that decreased factory utilization and price concessions could further weaken Tesla's fourth-quarter earnings.

Additionally, the analyst cautioned that Tesla investors might be growing weary of the company's political activities, which could further distract from its core business operations.