What occurred

Tesla (NASDAQ:TSLA) inventory remained in reverse gear Thursday morning, rolling towards its third straight day of losses with the share value down 1.3% as of 11:20 a.m. EST.

Why? My fellow Idiot and Tesla-watcher Daniel Sparks advised you the primary half of the story on Wednesday: A brand new report out of Morgan Stanley says that Ford‘s (NYSE:F) new Mustang-E is slicing into Tesla’s electrical car market share within the U.S. — it dropped by 12 share factors in February.

The second a part of this story dropped later Wednesday evening. CNBC reported that Fiat Chrysler — now a part of Stellantis (NYSE:STLA) — spent $362 million final 12 months shopping for regulatory credit to offset the emissions of the vehicles it sells. Most of this cash went to Tesla, which has credit aplenty to promote as a result of the vehicles it manufactures do not emit carbon in any respect.  

Simple red arrow declining stock chart on a white checked background

Picture supply: Getty Pictures.

So what

So why is that necessary? Final 12 months, Tesla raked in $1.6 billion in 100%-margin regulatory credit score income, promoting credit it would not have to vehicle producers that do. Analysts are hoping that this enterprise will growth even greater in 2021, dropping as a lot as $2 billion in income straight right down to Tesla’s backside line, and thus serving to it to develop its earnings.  

However this is the factor: Stellantis plans to chop again its purchases of regulatory credit this 12 months — not by a lot, however by some. It actually would not plan to extend these purchases by 25%. And if different automobile corporations observe Stellantis’s lead and fail to extend their credit score purchases, and even ratchet them again, then the first supply of Tesla’s earnings might at finest be peaking, and at worst — reversing.

Now what

Now think about what that development would possibly appear like as an increasing number of automakers — corporations like Hyundai, Volkswagen, and GM — begin promoting extra EVs of their very own. Take into account what it would appear like if these different automobile corporations not solely needn’t purchase as many credit, however begin producing some credit that they’ll promote. And think about what it would look if these different corporations begin to steal electrical car market share from Tesla, slicing into the quantity of credit Tesla generates to promote.

The state of affairs above could not essentially spell doom for Tesla, however it actually would not assist assist the case for Tesla inventory buying and selling at greater than 900 occasions earnings.

This text represents the opinion of the author, who could disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one in every of our personal — helps us all suppose critically about investing and make selections that assist us turn into smarter, happier, and richer.