What happened
Clean energy stocks jumped yesterday on news of a potential new agreement by Senate Majority Leader Chuck Schumer and pivotal swing voter Sen. Joe Manchin on a new bill. A closer look at the bill shows that electric vehicle (EV) leader Tesla (TSLA 2.00%) stands to benefit should the legislation pass and be signed into law. Tesla shares are moving up again today on that news, trading 2.4% higher as of noon ET on Friday.
So what
The surprise agreement out of Congress yesterday gave the renewable energy movement a boost with the proposed legislation in the Inflation Reduction Act of 2022. According to a Congressional Budget Office estimate, there is $369 billion in the bill for investments related to energy security and climate change.
Included in the bill is the continuation of a $7,500 tax credit for new EV purchases. But importantly for Tesla, it doesn't include a prior limit capped at 200,000 vehicle sales for each manufacturer. That makes Tesla buyers again eligible for this incentive.
Now what
Tesla is currently supply limited, with wait times of up to almost one year for some models. But with its two new factories ramping up in Texas and Germany, it should reduce those lead times. Tax credits from the new bill will require vehicles to be manufactured in North America, and Tesla should have much better supply when the Texas plant hits its full stride.
For investors, the inability to meet strong demand is a good problem to have. But it's even better news if Tesla can close that gap with its supply ramp-up, and subsequently have a new tailwind to spur further demand. Investors seem to see a win-win situation for Tesla, and shares have rallied in response.
