In what the New York Times calls the “most ambitious climate action undertaken” by the U.S., a sweeping new bill is moving forward in the U.S. Senate. Yesterday, Capitol Hill announced that an unexpected agreement for a $369 billion climate bill had been reached. It came after Senator Joe Manchin III (D-WV) changed his stance on the legislation. Among the bill’s provisions is the long-awaited return of electric vehicle (EV) tax credits. For companies like Tesla (NASDAQ:TSLA), this is a significant step forward. TSLA stock is rising today on the news.
While the EV tax credit only represents a small part of the bill, the sector will likely be among the first to benefit from its passing. The New York Times reports that energy experts feel that its fastest effect “will be to supercharge the growth of wind turbine, solar panel and electric vehicle production in the United States.” At a time in which EV production is having trouble keeping pace with demand, this is welcome news. Not all EV stocks are up today, but sector leader Tesla has risen 2% at the time of writing.
Let’s take a closer look at what investors can expect from the EV sector following this bill’s passing.
What It Means for TSLA Stock
What do these EV tax credits consist of? To start, they include an expansion of the current $7,500 tax credit for new EV buyers. But the new bill would also mean a tax credit worth $4,000 for qualifying buyers purchasing a used EV. As The Verge reports, “It would also remove the current 200,000 vehicle cap before triggering a phase-out of the tax credit, a huge win for companies like Tesla, Toyota (NYSE:TM), and General Motors (NYSE:GM) which have all sold more than 200,000 EVs.”
It’s easy to see why the passing of this bill would be a significant boon for TSLA stock. The expanded and renewed tax credits will likely lead to more EV sales, pushing stocks up across the sector. But the removal of the vehicle cap would be a significant catalyst for companies like Tesla. While both delivery statistics and overall earnings recently fell, the EV leader expects to continue scaling production in the coming quarters. And this new development from Capitol Hill is exactly what the company needs to start moving forward again after a difficult quarter.
Even before Manchin changed his position on climate action, experts saw a strong bullish case to be made for TSLA stock, even in the face of its disappointing Q2 earnings. “TSLA stock was recently down almost 34% YTD,” reported InvestorPlace contributor Tezcan Gecgil. “However, it is still richly valued at 65.8 times forward earnings and 13.7 times sales. Analysts’ 12-month median price forecast for Tesla stock is at $950.”
The Bottom Line
TSLA stock remains a strong buy as it prepares for a better quarter. The passing of the bill only strengthens its bull thesis. Consumers will have more incentive than ever to purchase EVs, and the company will have fewer constraints than ever. Assuming Tesla is able to keep scaling production, and there’s no reason to suspect that it won’t, it will keep growing. It is likely the most well-positioned EV producer to benefit from Capitol Hill’s ambitious climate action.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.