The profitability of Tesla Inc. (NASDAQ:TSLA) could be severely impacted under the second Trump administration, with a potential 40% decrease.

What Happened: After a less than stellar Q4 sales performance and a 6% decrease in Tesla’s shares, JPMorgan analysts foresee more hurdles in the company’s path.

The bank’s predictions are based on President elect Donald Trump‘s plans to do away with EV tax credits and subsidies, which have made Tesla’s vehicles more affordable to consumers.

For the first time, Tesla reported a drop in annual vehicle sales, with approximately 1.79 million cars sold in 2024, a slight decrease from the record 1.8 million sales in 2023.

This comes in the wake of a broader slowdown in the EV market as consumer preferences shift towards more economical hybrids.

JPMorgan analyst Ryan Brinkman expressed doubt about Tesla’s future prospects, stating that the company does not seem poised to dominate the global auto industry during the transition to electrification.

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“Tesla does not appear to us on track to dominate the global auto industry amidst the electrification transition, which we view as only the starting point for present valuation,” Brinkman wrote in a note on Friday and as quoted by Insider.

Brinkman also contradicted Elon Musk’s assertion that the removal of EV subsidies would be beneficial for Tesla. He projected that Tesla could lose around $3.2 billion due to regulatory changes under Trump, as government subsidies constitute a significant part of Tesla’s revenue.

“The slowing of deliveries, even ahead of a likely subsidy removal, we think has the potential to refocus investors on the deterioration in deliveries, revenue, gross profit, EBIT, EPS, and FCF estimates across all periods,” Brinkman added in the note.

Despite these obstacles, Tesla shares experienced a slight recovery on Friday morning, rising by about 4%.

Why It Matters: The potential elimination of EV tax credits and subsidies under the Trump administration could have a significant impact on Tesla’s profitability.

These incentives have played a crucial role in making Tesla’s vehicles more affordable, thereby driving sales. The shift in consumer preferences towards more affordable hybrids could further exacerbate Tesla’s challenges.

The company’s ability to navigate these changes and maintain its market position will be crucial in the coming years.

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