Can Tesla survive without Trump?

0:01Coming up on The Daily with Menil Patterson. Can Tesla survive without Trump? A Sky News investigation has revealed just how reliant Elon Musk's company is on government subsidies. So what happens now? The bromance is over. It was all so different once. Today it's about a man named Elon, and he's one of the greatest business leaders and innovators the world has ever produced. The partnership between one of the world's richest men and the world's most powerful man looked as solid as a cyber truck, which, of course, Donald Trump helped Elon Musk flog, used car salesman style, on the White House lawn.

0:44This is beautiful. Whoa! Should I get in? Get in! OK. So close were the men, the working relationship between the two, it was occasionally difficult to tell if the Oval was Trump's office or actually Musk's. But all good things must come to an end. So too, many really bad things. And the men have fallen out spectacularly. But on my first day in office, I ended the Green News scam and abolished the EV mandate, which is basically that everybody would be driving an electric car within a very short period of time. Now I know why Elon doesn't like me so much. The consequences for Donald Trump? Well, he now has a billionaire taking potshots at him and his administration every day of the week, to which he promises retaliation, the removal of government money.

1:33And a Sky News investigation suggests that for Elon Musk, for Tesla specifically, there are some big problems ahead. And that's exactly what Paul Kelso, our business correspondent, has been looking at, along with Kate Schneider from our data and forensics unit. Kate, let's start with you. Just explain. Tesla. How does it make its money? Yeah, so Tesla, I mean, on paper, is an incredibly successful company. Last year, it made nearly$100 billion in revenue profit off of that,$7.1 billion. You know, most people know it from its car sales. I mean, the Model Y was the best-selling car in the entire world in 2023.

2:13But a lot of people also don't know that it has a very successful energy division as well that does batteries too. And with the combination of these divisions in December 2024, it actually its valuation peaked at, I believe, 1.5 trillion, placing it at one of the most valuable companies in the entire world. 1.5 trillion, Paul. I mean, we are getting to the point where the figures actually don't make sense in a human brain. But it was not always thus. I mean, rewind 20 years ago. And Tesla was at that point still essentially a figment of its initial funders imagination. But Elon Musk was one of those initial investors, stuck some of his own money in.

2:56The first car didn't roll off a production line until 2008. And plenty of people doubtful whether you could build a mass production car company from scratch at the scale he was promising. And he has. And they have. And it is quite remarkable. They've gone from nothing to the biggest manufacturer of EVs in the world in less than 20 years. To what extent, though, Paul, is this down to the man? It's down to Elon Musk. I mean, he's styled himself as the figurehead. I wonder if it's more than that. He seems, as well as we can tell, to have a real focus on what they were going to try and produce. If we think about electric cars back in the mid 2000s, even the late of that first decade, quite a virtuous, dull vehicle that didn't go very far.

3:36on the focus of Tesla, and part of it's practical. Batteries are big, so let's make bigger cars. But they're sports cars, essentially. High-end performance vehicles. They went from being virtuous to desirable. And a lot of that had to do not just with a sharp bit of marketing acumen and focus, but also his charisma. And for a long time, his social media profile, his advocacy of low-carbon transport, he was at the forefront. And he was followed like a cult figure. And what he said literally moved markets. and very helpfully to Tesla, of course, it moved Tesla's share price. And when he said, we're going to hit X almost fantastical production target, people believed him and they drove the company on.

4:16So he played a very significant role. But you cannot keep shareholders on side with charisma alone. You need profits at the end of the day. And this is where the data and forensics unit has come in. You've been looking at these profits and they're not quite as stable as you might imagine. So we spent the past six months really diving into Tesla's accounts, their filings, looking at both how it became so successful right from the start and where it is at the moment. Around a dozen other states have signed on to this program where they cap the number of polluting petrol and diesel vehicles that can be sold in a given year.

4:55And they set targets for the number of EVs that they want to be selling. And manufacturers of these EVs, such as Tesla, get carbon credits. They get these credits that they can then sell on to higher polluting car manufacturers, permitting them to sell more of their polluting vehicles. And that 7.1 billion profits it made in 2024, we found over 38 percent were from carbon credits that are being traded at the state level. So that's kind of our floor for what we understand Tesla just last year made from subsidies. But on top of that, there's a whole other set of other government programs that we know have also benefited Tesla.

5:37One is the 7500 federal tax credit that reduces the cost of electric vehicles. So the difference in this regard is this is money coming from the US government, the other stuff coming from the state government. Exactly, yes. So now we're talking about a federal tax credit. And this 7 ,500 tax credit has effectively made Tesla's and other EVs$7 ,500 cheaper for potential buyers. But that has been scrapped recently in Trump's one big, beautiful bill. What are the practical consequences of removing this level of subsidy from an organisation like Tesla? I mean, obviously, presumably, cars become more expensive first and foremost.

6:24Absolutely. There are two laws. We'll just deal with the last one Kate mentioned first, the federal tax credit,$7 ,500. That's just money you get. You can have it up front. You can have it phased over the life of the vehicle. But it just wipes that money. It's a discount on the price tag on that car. and for a Model Y Tesla, which was their biggest selling model, one that just overhauled, that's about$45 ,000 on the road in the US. It's just got 16 % more expensive, nearly 17 % more expensive, because that's gone. Now, that also applies to every BMW, every Ford electric vehicle. Every electric vehicle suffers from this.

6:58But if you took about 630 ,000 Tesla sold in the US last year, if all of them benefited from the tax credit, and you've got to assume most people would, That's worth nearly$5 billion in discounts that Tesla wouldn't be able to offer otherwise without paying for it themselves. So it is really significant. But isn't there a fundamental difference between Tesla, BMW, Audi and all the rest of it? Is that there hasn't been a massive consumer backlash against Audi, BMW and the rest of it because the boss has gone in the White House with Donald Trump? Absolutely that. The interesting thing is you've got Musk the man and the noise I suspect he'd like to dismiss it as around his personality and his politics and how that's affecting consumer sentiment.

7:44And sales are down right around the world. And not all of that is because of Musk. There's more competition. But sales are down. In Europe particularly, people don't like it. We see them driving around. Tesla's with anti-Elon stickers. Or I bought this before Elon went crazy. So, you know, he is having an impact. So that's the fundamental level. Tesla's just got more expensive for everybody in America. The part about those state-level credits, which are meant to encourage the sale of electric vehicles, the beauty of them for a company like Tesla, you get a credit for every electric vehicle you make to try and hit a certain proportion of the total sales.

8:25If you're Tesla, you don't make anything but EVs. So that is free money. and you can then sell them to General Motors, to Ford, if they're not hitting their targets. As someone wants to put it, these kind of credits when it comes to saving carbon, you pay someone else to go on the diet for you. They've got this free reserve of money and it makes up over a third of their profits. So these are really, really important. So that's the fundamentals that investors are looking at as well as all the, should we call them challenges, that come with Elon and his political ambitions. If all these subsidies were to go, I'm looking at the numbers here.

9:04Doesn't Tesla come incredibly close to not turning a profit anymore? We've also looked at the report from the first quarter of this year. And without those carbon credits, those regulatory credits at the state level, Tesla would have, in the first quarter of this year, made a loss. Really? So this is fundamentally a company whose business model has relied on subsidies. It's certainly its profit line has relied on. I mean, remember, this is still a hundred billion turnover company. It's really hard to make a profit in the car industry. You need to sell actual cars in pretty high volumes, as well as taking advantage of what tax incentives there are out there.

9:51But the margins aren't enormous. and Tesla has been boosted and buoyed throughout its growth. One of the things he did brilliantly and with foresight was took advantage of the enthusiasm of governments around the world to promote low-carbon transport. The UK offers these kind of, there's a credit scheme running here. So he saw that and Tesla has ridden that wave, but boy has it crashed on the beach in the last few months. So what left this happening with the share price then? In December 2024, it reached its historic peak of 1.5 trillion. And immediately after, you know, the first few months of Trump being in office and Musk joining the administration as well through his work through the Department of Government Efficiency, you saw the share price fall quite dramatically, especially as these protests popped up around the world.

10:40in the past couple months, especially as Musk started hinting that he would be leaving the administration, then actually did. You have seen the share price recover somewhat, but it still is only two thirds of what it was in December 2024. For all this huge decline post the fallout with Trump, share price is still higher, about 15 % than it was a year ago. It's absolutely not tanking. But the interesting thing is, it's Tesla's, the ratio between its valuation on the stock market and its earnings is nearly 200 times high. Its valuation is nearly 200 times what it earns. Ford, which makes all sorts of cars, is nine times what it earns.

11:19NVIDIA, which is the AI growth stock, is only 50 times. So Tesla has got a valuation that dwarfs its peers. As car companies, Elon wants you to think this is a tech stock. But the reason it dwarfs it is because of faith in Musk, faith in his promise that this is going to be an AI company, and particularly in the promise around self-driving. But the reality of his self-driving promise is bumping into things, bumping into reality, because the cars are bumping into things. But this is a huge investment in a mode of transport that we're not sure people even want to use yet. But it is still, for now, sustaining this enormous valuation of Tesla.

12:01But people are now looking at the reality, selling cars without state handouts. I mean, all of this at a time when, you know, his former Bezzy, Donald Trump, is in the White House playing merry-go-round with global supply chains and launching global trade wars. That can't be good for business. It's not, and it is remarkable. Let's take a step back. This has to be, certainly at the moment, looks like one of the greatest corporate acts of self-harm in history. It's a man who has spent hundreds of millions of dollars getting a president elected on a policy platform he knew was going to include tariffs, which disrupt supply chains, which is guess where Tesla, the engine room of Tesla's production is China.

12:41He was very smart. He went to China. He saw their whole auto industries pointed electric. So it's not just tariffs, but also he was promising to disembowel green industries by cutting the tariffs and not just the cars. You get 60 % tax credit if you buy a solar panel and a battery from Tesla. That's gone too. I mean, are we entirely certain that all of these subsidies are coming to an end? If Donald Trump changes his mind, I'm sorry, Elon Musk moves from naughty boy back into the Messiah column, doesn't he? We're talking about two of the most unpredictable public figures in the United States and even the world today.

13:17So it's really hard to say what will happen next. What we do know is that several of these subsidy programs, those have already gone. And Trump has threatened through multiple posts on Truth Social the possibility of cancelling all of Elon Musk's company's federal contracts and possibly going after other subsidy programs benefiting Tesla as well. But we know President Trump loves to talk big and sometimes follows it up with action, sometimes doesn't. So it's a bit unpredictable about what might happen next. Kate, Paul, thank you. And of course you can read the full investigation. That is available right now on the website and the app.

13:58The Sky News Daily is back tomorrow.