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The Democrats’ takeover of the House could benefit auto makers with an aggressive electric- and hybrid-vehicle strategy, such as
Fiat Chrysler Automobiles
that are playing catch-up in this area.
Moreover, the shift in power will make it harder for the Trump administration to significantly weaken the Corporate Average Fuel Economy (CAFE) standards, says David Kudla, chief investment strategist at Mainstay Capital Management. Those rules, toughened in the Obama era, have a goal of about 47 miles per gallon by 2025.
GM (ticker: GM) sells plug-in hybrid Chevrolet Volts and electric Chevolet Bolts. Tesla (TSLA) sells EVs to motorists and CAFE credits to other manufacturers. Indeed, in the third quarter, Tesla’s sales of the credits hit $189.5 million, a $169.4 million jump from the year-earlier level and a big reason it reported a profit for the period. Fiat Chrysler (FCAU) and Ford (F), which both depend heavily on pickups and SUVs, would be disadvantaged if the rules stick.
In addition, buyers of hybrids and EVs can get a federal tax credit of up to $7,500. But the subsidy covers only the first 200,000 such vehicles produced by a manufacturer; it’s phased out in stages for subsequent sales. Tesla hit this level in the second quarter, and GM is close.
However, Jay Van Sciver, an analyst at Hedgeye Risk Management, says the credits could be extended. While the Republicans, who still control the Senate, could be expected to oppose this, there’s always horse-trading in politics, he notes.
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