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Should Tesla Inc. Investors Be Concerned about Trump's Emissions Agenda?

By Daniel Miller - Mar 23, 2017 at 10:54AM

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President Trump has made it clear he's no fan of the stricter auto emissions standards the EPA set under his predecessor. If he spikes them, how much will that hurt electric-vehicle makers?

Love him or hate him, nobody can argue that President Donald Trump hasn't made a lot of noise since he took his seat in the Oval Office. And while many of the policies his administration will promote remain up in the air -- and will for some time -- some major automakers have already begun changing up their strategies.

One policy shift that could impact Tesla Inc. (TSLA 4.53%) investors is if Trump and his appointees loosen automotive emissions standards.

After all, oil is fairly cheap now, and if gasoline-powered vehicles need less of the expensive technology being developed by automakers to meet the stricter pollution standards put in place by the Obama administration, traditional vehicles will likely come with lower sticker prices. That would make it more difficult for consumers to justify buying electric vehicles, which could slow their mainstream adoption.

But is this really an issue for Tesla investors to be concerned about? If recent news is any indication, don't lose any sleep just yet.

What's Trump doing anyway?

If you remember, just before Barack Obama was set to depart the White House, the EPA tried to secure the stricter automotive emissions standards that were put in place during his administration. Those efforts may be to no avail: Last Wednesday Trump announced that his administration would reopen and review those emissions mandates. That's positive news for producers of large SUVs and trucks, such as Detroit automakers, but not as positive for automakers like Tesla that are pushing for a faster adoption of electric vehicles. 

Tesla's Model S charging at a home station.

Image source: Tesla, Inc.

The consequences of keeping the current standards are dire, if you're inclined to believe Ford CEO Mark Fields. Early in 2017, when Fields met with Trump, he claimed that 1 million jobs would be at risk if regulations weren't toned down. Independent analysts responded that the figure he cited was a worst-case scenario from a report that has been scathingly criticized for basing its results on a set of dubious assumptions.

However, there's no doubt that keeping strict emissions standards, and forcing automakers to accelerate research and development spending on technology required to meet those standards, will be costly. The EPA estimated the cost to add fuel-saving technologies could reach $1,565 per vehicle, depending on the time frame. That's a significant chunk of change to tack on to a new car purchase. The relaxation of regulations could help most automakers save a few bucks and keep their sticker prices a bit lower.

The good news is...

Here's the good news for Tesla investors: A bunch of U.S. cities remain willing to spend billions on electric cars and trucks.

More specifically, according to a recent Bloomberg article, more than 30 cities, including New York and Chicago, have asked for specific cost information and details on the feasibility of producing and purchasing 114,000 electric vehicles -- from police vehicles to street sweepers. That number would be close to three-fourths of total U.S. plug-in sales during 2016. In essence, those municipalities are looking to prove there is plenty of demand for electric vehicles -- starting with themselves.

That position was stated firmly by Daniel Zarrilli, New York City's senior director of climate policy and programs, in an interview with Bloomberg: "Now more than ever there is a need for cities' leadership on climate. We really want to send a message that there is a growing market for electric vehicles -- regardless of what is happening in D.C." 

It appears that cities and the automotive industry in general understand that our vehicular future is electric, and that a near-term change in policy by Trump's administration won't derail long-term plans -- and certainly won't derail Tesla. Truth be told, a move to roll back emissions standards could have hurt Tesla if it the company were already the size it hopes to be in five to 10 years, but at this point, the impact will be less of a negative for Tesla and more of a positive for Detroit automakers.

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