By Liam Denning

Detroit voted overwhelmingly for US Vice President Kamala Harris, but investors backed President-elect Donald Trump.

Shares of General Motors and Ford Motor jumped in the wake of Trump’s election victory, with GM hitting a new high for the year and Ford rising nearly 6 percent last Wednesday, more than double the S&P 500’s gain. Meanwhile, in Austin, Tesla added more than $100 billion to its already massive market value.

Those earnings raise questions, though for very different reasons for Elon Musk’s electric vehicle maker.

The positive picture of a Trump presidency for Detroit operators revolves mostly around relaxing emissions standards and tightening incentives for electric cars (EVs). The bottom line, according to this reasoning, is that these companies will be able to sell more highly profitable trucks and SUVs with internal combustion engines and won’t have to sell a growing number of loss-making EVs. Also, Trump will maintain or raise tariffs on Chinese electric cars and may raise tariffs more broadly, hurting other foreign automakers (shares in Mercedes-Benz Group AG and Bayerische Motoren Werke AG fell after Trump’s election victory). In addition, the corporate tax rate will be reduced, and surging economic growth will boost weak car sales. Hooray!

As with so much surrounding Trump, things may turn out to be a bit more complicated.

Let’s say Trump tightens or — with the help of a Republican-controlled Congress — completely eliminates the consumer tax credit for electric cars, along with the clean-tech manufacturing credits established by outgoing President Joe Biden’s law. Biden on reducing inflation. Doing so could actually reinforce Detroit’s EV losses.

Think of Ford and GM’s EV divisions as startups, similar to Tesla in its first decade as a publicly traded company. Their losses are mainly due to the fact that they capitalize the cost of investment in plant and machinery on very few vehicles sold. Automakers as a whole have invested $199 billion in EVs in the US over the past decade, according to Bloomberg Intelligence.

GM boasted at its recent analyst day that EV segment losses have peaked this year and that the segment will contribute $2 billion to $4 billion to operating profit next year, with half of that coming from expansion. In other words, what is needed is to sell more electric cars. Of course, if EV investment stops in January, then at some point, yield resistance will ease.

Relaxing emissions targets would naturally offer more leeway for Detroit’s staple, gasoline-powered cars. But the goals set by the Biden administration were designed in retrospect to give Detroit (and the United Auto Workers) time to adjust to a more electric future. The incremental benefit of relaxing these targets is therefore also back-end loaded. (p.s. The term “back-end load” refers to a type of charge or fee imposed on investors when selling or exiting an investment product, such as a mutual fund. Typically, this fee is reduced or eliminated with the over time if the investor holds his position for several years).

On another front, while Trump will almost certainly try again to overturn California’s exemption that allows the state to set its own, more restrictive, emissions standards, this will likely be a case in which he duration, which will cloud the picture for car manufacturers rather than clarify the landscape, at least in the short term.

Tariffs, likewise, have two aspects. The sweeping tariffs Trump is pushing will fuel inflation in a vehicle market where the average monthly cost to own and operate already exceeds $1,000. In September, AutoZone’s CEO said bluntly that “if we have tariffs, we’re going to pass those costs back to the consumer,” and his company won’t be alone in doing so. Additionally, with the lion’s share of drivers’ monthly costs reflecting lease or loan payments, any upward pressure to cover higher prices will exacerbate the problem. Needless to say, if Trump follows through on his threats of heavy tariffs on vehicle imports from Mexico, it will hurt U.S. automakers that produce more than a million units a year south of the border.

At the moment, Detroit has retreated to reliance on the idiosyncratic, by international standards, American preference for heavy, expensive models. Further encouraging this, and discouraging electric cars, will reinforce the disconnect with the rest of the world at a time when China is making great progress in cheaper vehicles, especially electric cars. An added complication is who will secure power in 2028 or 2032. Detroit can’t afford another decade of industry policy twists and turns.
Tesla is immune or indifferent to some of these complications, as it has no factories in Mexico and is not involved in the “games” around emissions. Of course it will be hurt by the loss of incentives in EVs, as the slowdown in sales will be reinforced from early 2023. But why is the company’s stock jumping then? That’s because Tesla’s value has now become highly correlated with the potential sales of the robotaxi. The close relationship between Musk and Trump, with a possible role in the White House on the horizon, points to the prospect of a looser treatment from regulators for the company’s massive experiment with autonomous driving on public roads. This atmosphere justifies the additional approximately 100 billion. dollars over the already 800 billion dollars of Tesla’s capitalization? It seems excessive, but, on the other hand, if you’re already excited about the idea of ​​Tesla’s dominance, this reasoning might not be too much.

To a lesser extent, there may be some similar reasoning with GM and Ford. The rhetoric of tax cuts and a motor-friendly White House raises questions. There is a possibility that Trump will not follow through on everything he says. His arrogance and contradictions mean it’s not a completely crazy bet, but it’s certainly a bet.

Liam Denning is a Bloomberg Opinion columnist covering energy issues. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’ Lex column.