Guggenheim trims Tesla targets on tax credit, China demand concerns
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Guggenheim reined in estimates for Tesla (NASDAQ:TSLA) as fewer models than expected are due to qualify for tax credits under the Inflation Reduction Act.
The IRS released new guidelines for vehicles qualifying for the $7,500 tax credit on Thursday. The terms of the tax credit include specifications that vehicles must be assembled in North America and sets price caps on qualifying cars and SUVs. For the former, $55K is the max MSRP while SUV MSRPs are allowed to extend to $80K. 
Guggenheim picked up on the price cap as a factor impacting Tesla (TSLA) and its Model Y specifically. 
âIn short, the disclosure is negative for TSLA with most Model Y's being subject to a $55K price cap. As a result, only the 7-seat version of the Model Y will be eligible for the $80K price cap, and while this will make that vehicle more attractive, we believe it represents a low percentage of overall US sales,â the firmâs analysts explained. âWe previously estimated that 60-70% of TSLA US units would qualify for EV sales credits based on current prices, but with revised guidance that number is likely to be closer to 10-20% barring a price cut on the Model 3 LR.â
To be sure, Tesla (TSLA) will still enjoy the manufacturing credits that are provided for under the IRA. Guggenheim anticipates Tesla will be a âmeaningful beneficiaryâ of these credits over the next few years. 
However, the diminished tax credit availability for consumers caused the firmâs analysts to temper near-term expectations. This dynamic adds to broader concerns on demand dynamics in 2023, especially in China.
âWe are lowering our 2022 and 2023 estimates reflecting the updated IRS guidance on IRA eligibility, further softening China demand trends, and price cuts now embedded in all regions (only China prior),â the analysts concluded. âWe reiterate a Neutral rating but we believe the risk/reward skews to the downside in the near term as 2023 consensus estimates are lowered and investors recalibrate for a lower medium- to long-term growth outlook.â
Read more on Morgan Stanleyâs recent price target cut.