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An analyst at Bernstein has reflected on the Inflation Reduction Act (IRA), which was signed by President Biden last week and immediately put into effect.
Among other things, the IRA will create conditions for electric vehicles (EVs) to qualify for consumer subsidies. The analyst sees electric truck OEMs (original equipment manufacturers), Tesla (NASDAQ:TSLA), and General Motors (NYSE:GM), as big winners from IRA. Ford (NYSE:F) is also seen as a beneficiary.
“The big winners from IRA are clearly Tesla and GM, and who could not qualify for a $7500 subsidy before, and now can, given the dissolution of the lifetime 200,000 EV limit,” he said in a client note.
Tesla believes it will qualify for EV subsidies in 2023, but the analyst claims it will likely fail to do so in 2024. However, the EV company’s Semi Truck is seen as a significant beneficiary.
“It is unclear how many Model 3 offerings will qualify for a subsidy benefit, unless Tesla is able to reduce price on its Long Range model; Model Y and the Semi are poised to be the biggest potential beneficiaries; Cybertruck may initially be too expensive to qualify.”
Net-net, he says IRA law is “a clear positive for Tesla.” Still, the analyst reiterated an Underweight rating and a $450 per share price target as he continues to “struggle to justify the company’s valuation.”
“TSLA’s valuation is higher than all other major auto makers combined, and appears to imply huge volume AND industry leading profitability going forward, which is historically unprecedented. We believe risk/reward at current levels is not attractive for longer-term investors,” he added.
On the other hand, the European and Asian OEMs are seen as “relative losers given a higher degree of dependency on component and battery imports and a smaller manufacturing/supply chain footprint in the US,” the Bernstein analyst concluded.
