Tesla, Rivian, other EV stocks drop as Biden bill collapses
Popular shares, including Tesla, Rivian and General Motors, have fallen as Biden’s “Build Back Better” plan lost the possible support of a key US senator.
Shares of electric vehicle companies were amongst the most heavily traded stocks following the apparent failure of President Joe Biden’s ‘Build Back Better’ stimulus package.
Before trading on Monday, Democratic Senator Joe Machin seemed to doom the bill by saying he wouldn’t vote for it, after several attempts to win his support. With the US Senate divided 50-50, every Democratic vote is needed for it to pass.
The $2 trillion program included incentives to buy electric vehicles and money for charging stations, as well as other green initiatives. The collapse shook EV stocks, as incentives as high as $12,500 for buying an EV were seen as critical to raising demand for the product.
Smaller EVs, including Lordstown Motors, Faraday Futures and Nikola, saw much stronger falls, all down at least 7%.
Several did regain some ground on Tuesday. Efforts are also under way to salvage Biden’s bill, which could easily impact these stocks again.
What does this mean for EV stocks?
According to Saxo Bank’s Australian market strategist Jessica Amir, the EV sector — which largely runs on sentiment over fundamentals — may find it tough to grow in the future.
“Just look at Rivian,” she said. “As growth stocks get squeezed from the interest rates rise next year, investors ought to take heed and consider quality EV names (those with strong balance sheets, as opposed to chasing meme stocks).”
How is Elon Musk reacting
The world’s richest man and Tesla CEO Elon Musk campaigned against the bill, despite his being a company that would benefit from the stimulus package.
The billionaire questioned the amount of spending and whether it would even end on time.
“If ‘temporary’ provisions in the Build Back Better Act become permanent, US national debt will increase by 24%!” Musk said to his 67 million Twitter followers. “There is a lot of accounting trickery in this bill that isn’t being disclosed to the public.”
“Nothing is more permanent than a ‘temporary’ government program.”
He went a step further in a recent Wall Street Journal interview, saying, “It might be better if the bill doesn’t pass. The federal budget deficit is insane… something’s gotta give. You can’t just spend $3 trillion more than you own every year and don’t expect something bad to happen.”
The Biden administration has said the plan is funded and would not raise the deficit.
Outlook for the economy
Without Build Back Better, the US economy as a whole has been downgraded. Goldman Sachs reduced its US economic growth by 1% of GDP for the first quarter of 2022 from 3% to 2%.
However, according to investment banking company UBS, this won’t change the outlook for equities as a whole.
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