What happened
Clean energy stocks jumped yesterday on news of a potential new deal between Senate Majority Leader Chuck Schumer and key voter Senator Joe Manchin on a new bill. A closer look at the bill shows that electric vehicle (EV) leader Tesla (TSLA 5.79%) stands to gain if the legislation is passed and signed into law. Tesla shares are moving higher again today on the news, trading 2.4% higher as of noon ET on Friday.
So what?
A surprise agreement by Congress yesterday gave a boost to the renewable energy movement with proposed legislation in the Inflation Reduction Act of 2022. According to an estimate by the Congressional Budget Office, the bill has $369 billion in investments related to energy security and climate change.
Included in the bill is the continuation of a $7,500 tax credit for new EV purchases. But the important thing about Tesla is that it does not include an up-front cap limited to 200,000 vehicle sales for each manufacturer. This makes Tesla buyers eligible for this incentive again.
Now what
Tesla’s supply is currently limited, with wait times of up to nearly a year for some models. But with its two new factories expanding in Texas and Germany, it needs to reduce those lead times. The new bill’s tax credits will require the vehicles to be manufactured in North America, and Tesla should have a much better supply when the Texas plant hits full stride.
For investors, not being able to meet high demand is a good problem to have. But even better news is if Tesla can close that gap as supplies grow and subsequently have a new tailwind to drive additional demand. Investors seem to see a win-win situation for Tesla, and shares have risen in response.
Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Tesla. The Motley Fool has a disclosure policy.
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