Why Tesla, Musk are Switching Their Positions on EV Tax Credits

Elon Musk, the CEO of Tesla, once argued that the federal electric vehicle (EV) tax credit of $7,500 should be scrapped. He believed Tesla could succeed without government help and even suggested that all subsidies, including those for oil and gas companies, should be removed.

But recently, both Musk and Tesla have taken a different stance. They are now in favor of keeping the tax credits. So, what’s behind this shift?

Financial Pressure on Tesla

Tesla has hit a rough patch. In 2024, the company experienced a decline in yearly vehicle sales for the first time. During the first quarter alone, sales dropped so sharply that Tesla’s profit shrank by 71%. This marked one of its worst financial quarters ever.

Even though the tax credit goes to buyers and not directly to Tesla, it still helps the company. The credit lowers the final cost of a Tesla car, making it more affordable and appealing. Back in 2019, when Tesla lost access to the earlier version of the tax credit, the company had to cut car prices to maintain sales.

Now, with fewer Americans buying EVs, Tesla is under pressure and could really benefit from the support these credits offer.

A Fight Over Policy

Musk’s change of heart also relates to a recent government legislation dubbed the “Big Beautiful Bill.” This bill suggests removing EV tax incentives while keeping subsidies for fossil fuel companies. Musk has spoken out strongly against this, calling it unfair and biased.

This disagreement has caused tension between Musk and President Donald Trump. The two were previously seen as allies, but that relationship seems to have cooled. Trump expressed confusion over Musk’s new position and blamed it on the bill’s cuts to EV support. Musk responded by criticizing the bill’s spending and calling it wasteful, especially since it favors oil and gas industries over clean energy.

After this public disagreement, Tesla’s stock price dropped by 14%.

Experts Are Rethinking Their Predictions

Market analysts who once believed Tesla would gain an edge without the tax credit are now reconsidering. Garrett Nelson, a financial analyst, used to think that taking away the credit would weaken Tesla’s competitors. But with Tesla now losing market share in Europe and China, he says the company could suffer from the same policy change.

Another expert, Dan Ives, explained that Tesla still relies on government incentives to boost demand. While Tesla is a leader in the EV market, these credits are now more crucial than ever.

EV Sales Are Slowing in the U.S.

A bigger concern is that interest in electric cars is fading in the American market. One industry expert mentioned that EVs may never account for more than 8% of total U.S. car sales. If demand stays low, Tesla’s growth will be limited, especially since the company hasn’t launched many new models lately. Many consumers are also waiting for a more affordable Tesla model that hasn’t yet arrived.

Unequal Credit Rules?

Another issue is how the new bill applies the tax credit. It still supports buyers of EVs from newer companies like Rivian and Lucid, but not those from Tesla or older automakers. Musk has said this is unfair, especially because oil and gas subsidies remain untouched.

Tesla and Elon Musk have clearly changed their position on EV tax credits. What was once seen as unnecessary government help is now viewed as a much-needed boost during a tough period for the company. With falling sales, shrinking profits, and weak demand in the U.S., Tesla is looking to these credits to stay competitive. The political battle over the credits, along with expert concerns and market changes, has made one thing clear: Tesla can no longer afford to ignore government support.

It remains to be seen how Chinese EV companies like NIO Inc. (NYSE: NIO) will try to benefit from the removal of the tax credit in the U.S.

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