Core Insights - The expiration of the federal electric vehicle (EV) tax credit marks the end of a 17-year policy that significantly aided EV adoption and reduced the price gap with gasoline vehicles [1] - The immediate consequences include reduced demand for EVs, streamlined production, and a shift in strategy by traditional automakers towards hybrids and profitable internal combustion engine (ICE) models [1] - Ford's CEO predicts a substantial decline in EV market share, potentially dropping to 5% from the current 10-12% due to the removal of the $7,500 consumer incentive [3] Industry Impact - The end of the subsidy is causing structural changes, leading to a surplus in battery production and halted factory plans, which could jeopardize future supply if production capacity is reduced too much [2] - The recent surge in demand before the subsidy expiration is expected to be followed by a significant drop in sales in Q4 as consumers reassess the value of EVs without the tax credit [5] Consumer Behavior - Consumers show a preference for more affordable vehicles, with a noted disinterest in high-priced EVs, indicating a shift towards hybrid and partial electrification solutions [4] - The removal of the tax credit has led to a pause in consumer purchasing decisions as they evaluate financing options and the overall value of EVs [5]

Industry Overview - The Zacks Domestic Auto industry encompasses companies involved in designing, manufacturing, and retailing various types of vehicles, including passenger cars, trucks, and electric vehicles [3] - The industry is highly consumer cyclic and is undergoing significant transformation due to technological advancements and rapid digitization [3] Key Themes Shaping the Industry - New vehicle sales remained strong in August, with a seasonally adjusted annual rate exceeding 16 million, but rising vehicle prices and tariffs may slow momentum as affordability weakens [4] - The Federal Reserve's recent interest rate cut may not significantly alleviate high auto loan costs, with meaningful relief not expected until 2026 or later [5] - Electric vehicle sales surged to a record 146,332 units in August, driven by the impending expiration of the $7,500 EV tax credit, but demand may sharply decline once the incentives are removed [6] Industry Performance - The Zacks Automotive – Domestic industry currently holds a Zacks Industry Rank of 147, placing it in the bottom 40% of approximately 250 Zacks industries, indicating a negative earnings outlook [7][8] - Despite the overall weakness, the Domestic Auto industry has outperformed the Zacks S&P 500 composite and sector over the past year, gaining 31% compared to 24% for the sector and 18% for the S&P 500 [10] Current Valuation - The industry is trading at an EV/EBITDA ratio of 45.27X, significantly higher than the S&P 500's 18.34X and the sector's 22.83X, reflecting the debt-laden nature of automotive companies [13] Company Highlights Blue Bird Corporation (BLBD) - Blue Bird is a leader in low- and zero-emission school buses, with over 20,000 vehicles in operation and a strong demand for its products [17] - The company delivered a record 271 electric buses in the last quarter and raised its full-year adjusted EBITDA guidance to $205-$215 million, indicating a margin of approximately 14.5% [18] - The Zacks Consensus Estimate for BLBD's fiscal 2025 and 2026 sales implies year-over-year growth of 8% each, with bottom-line estimates suggesting improvements of 17% and 3% respectively [19] Xos, Inc. (XOS) - Xos specializes in fully electric, zero-emission medium- and heavy-duty trucks, with a growing customer base including major operators like UPS and FedEx [23] - The company reported a 50% year-over-year increase in deliveries, with revenues climbing 18.7% to $18.4 million, and generated positive free cash flow of $4.6 million [24] - The Zacks Consensus Estimate for XOS's 2025 and 2026 sales implies year-over-year growth of 3% and 25.5% respectively, with bottom-line estimates suggesting improvements of 46% and 27% [25]

Core Insights - Tesla urges American consumers to purchase vehicles now due to limited supply and the impending removal of the $7,500 EV tax credit by the end of the quarter [1][2] - The company reported second-quarter revenue of $22.5 billion, marking its sharpest quarterly revenue decline in at least the last 10 years, with earnings per share at 40 cents, below Wall Street's estimate of 42 cents [9][10] - Tesla's stock fell over 4% after hours on the earnings report and is down 17.6% year-to-date [11] Supply and Demand - Limited vehicle supply in the U.S. is expected this quarter, prompting the CFO to recommend placing orders immediately [2] - The removal of the EV tax credit is seen as beneficial for smaller competitors like Lucid and Rivian, who are less reliant on such incentives [2] Financial Performance - Tesla delivered over 384,000 vehicles in the quarter ending in June [3] - The company is experiencing a "weird transition period" as it adjusts to the expiration of incentives and the regulatory environment for autonomous vehicles [8] Cost Pressures - The CFO indicated that tariffs imposed by the Trump administration have raised costs by approximately $300 million this quarter [9] - Tesla is beginning to reduce planned incentives as vehicle sales increase, including perks like free supercharging and discounts for certain groups [3]

Core Viewpoint - The "Big Beautiful Bill" supported by President Trump and Congress is expected to negatively impact Tesla by increasing costs for consumers purchasing electric vehicles and reducing credits for EV companies [1][3]. Group 1: Analyst Downgrade - William Blair analyst Jed Dorsheimer downgraded Tesla stock from "Outperform" to "Market Perform" without providing a price target [2]. - Dorsheimer believes the recent bill could be too challenging for Tesla stock to recover from [3]. Group 2: Impact of the Bill - The removal of the $7,500 EV tax credit for consumers is anticipated to reduce demand for Tesla vehicles, while the elimination of corporate average fuel economy (CAFE) fines was unexpected and necessitates a reset [3][4]. - Dorsheimer noted that Tesla earned $2.8 billion from selling regulatory credits in 2024, which constituted 16% of its total gross profit, and the loss of these credits could significantly affect profitability [4]. Group 3: Revenue and Demand Concerns - It is estimated that 75% of Tesla's regulatory credit revenue is tied to CAFE standards, which will be eliminated by 2027 [5]. - The combination of weakened demand and reduced profits from regulatory credits may create substantial challenges for Tesla, particularly in the fourth quarter [5]. Group 4: Investor Sentiment and Stock Performance - Dorsheimer indicated that investors may be growing weary of distractions from CEO Elon Musk, especially when the business requires his focus [6]. - Tesla stock is currently trading at an enterprise value of 76 times its lowered 2026 EBITDA estimates, reflecting investor concerns [6]. - As of the latest trading session, Tesla stock increased by 1.3% to $297.81, but it has declined by 20.4% year-to-date in 2025 [7].

Core Viewpoint - Tesla shares are experiencing significant pressure following a downgrade by William Blair, with the stock price dropping below $300 in pre-market trading, indicating investor concerns about demand and profitability due to recent policy changes [1][4]. Group 1: Stock Performance - Tesla shares closed at $315.35 but fell 6.5% in pre-market trading, reaching around $294 [1]. - The downgrade has led to a sharp decline in stock price, reflecting market reactions to the news [4]. Group 2: Analyst Downgrade - William Blair downgraded Tesla's rating from 'Outperform' to 'Market Perform' due to anticipated demand issues following the removal of the $7,500 U.S. EV tax credit and the elimination of corporate average fuel economy (CAFE) fines [4][6]. - Analyst Jed Dorsheimer highlighted that the loss of the EV tax credit could negatively impact demand, but the more pressing concern is the potential loss of over $2 billion in profit from regulatory credits, which would directly affect Tesla's profitability [5][6]. Group 3: Investor Sentiment - Investor sentiment is further strained by CEO Elon Musk's political ambitions, which have raised concerns about his focus on Tesla during a critical period for the company [7][8]. - Dan Ives, a long-time Tesla analyst, noted that investors are feeling a "sense of exhaustion" regarding Musk's political involvement, which contrasts with their expectations for his focus on the company [8][9].

EV Tax Credit Impact - The removal of the EV tax credit is a significant factor, with the current iteration ending on September 30th [2][3] - A pre-buy of vehicles is anticipated before the September 30th deadline, potentially followed by a demand fall-off [3][4] - Leasing penetration on EVs is high (north of 50% or 60%) due to attractive leasing deals related to the EV tax credit [5] Tesla's Fundamentals and Future - Tesla's fundamentals, while seemingly not currently impactful on the stock price, will eventually matter [7] - Tesla deliveries are expected to show sales lagging, with a likely significant decline in volume this year [7][8] - The new low-cost model, initially expected in the first half of the year, has not been released [8] - Weaker near-term business could impact funding for next-generation efforts like AV and Optimus robots [9] Market Perception - There is a perception of Model 3 deals being attractive, with mentions of 2.99% or 3.49% monthly rates [6] - Regulatory overhang regarding robo taxi remains a factor for the stock [7]