Key Takeaways

• Elon Musk has reportedly endorsed President-elect Donald Trump's plans to scrap a federal electric vehicle tax credit that has benefited his EV company, Tesla.

• Some experts say scrapping subsidies could benefit Tesla. If domestic competitors slow their investment in EVs, Tesla could be better-positioned to grow market share.

• Musk, who has made autonomous vehicles Tesla's next big bet, could also see the Trump administration's support for self-driving cars offsetting headwinds to Tesla's EV business.

Elon Musk wears many hats. He's the CEO of America's leading electric vehicle maker—and an influential advisor to Donald Trump, a president-elect who may end federal support for electric vehicles.

Trump’s transition team reportedly is preparing plans to eliminate the $7,500 electric vehicle tax credit, a key piece of President Biden’s efforts to accelerate U.S. EV adoption and a major tailwind for Tesla (TSLA). Musk has reportedly told Trump he supports those plans.

Trump's plans for EVs and the associated tax credits have yet to be publicly detailed. Still, Musk's support for Trump's EV plans has raised questions about why he would endorse seeming headwinds for his own company. Here are some possible explanations.

Tesla's Scale an Advantage Over Competitors

Trump’s second term is expected to be difficult for the EV industry overall. In addition to scrapping EV tax credits, Trump has vowed to rescind vehicle emissions standards that would force car manufacturers to make EVs a greater portion of their total sales throughout the next decade.

Yet some see the potential for Tesla to benefit from Trump's anti-EV policies. Musk himself said on a call with investors in July that eliminating the federal tax credits could benefit Tesla in the long-term in part because "it would be devastating for our competitors."

Tesla is one of the only U.S. carmakers whose electric vehicles are profitable, giving it a buffer against industry-wide headwinds. The company can build electric cars at a lower cost than domestic competitors, enabling it to undercut them on pricing in a market without subsidies.

Still, Tesla’s sales are likely to be hurt by the elimination of the EV tax credit. Gene Munster, co-founder of Deepwater Asset Management, has compared the end of the EV tax credit to a 15% price hike on Tesla cars that would cut into sales.

Ending the tax credit could also discourage competitors like General Motors (GM) and Ford (F) from continuing to invest heavily in EVs, leaving the door open for Tesla to grow its already sizable market share.