Investing.com — In a note to clients on Wednesday, Bernstein analysts assessed the potential downside risks to electric infrastructure stocks if President-elect Donald Trump revokes the $7,500 electric vehicle (EV) tax credit, a move that is reportedly being considered as part of a broader tax reform.
According to Bernstein, the market’s immediate reaction caused low-single-digit declines in stocks such as Eaton (NYSE:), Hubbell (HUBB), and Quanta services (NYSE:), the longer-term impact may already be largely priced in.
Repealing the EV tax credit would remove a major tailwind for electricity distribution infrastructure spending. “EV charging is typically done at home, and a step change in the number of EVs installed has been a boost to investment on that side of the grid,” Bernstein said.
They estimate that eliminating the tax credit would reduce electricity demand growth attributable to EVs from a compound annual growth rate (CAGR) of 0.6% to 0.4% over the next five years.
To quantify the impact, Bernstein compared the situation to Germany rolling back EV subsidies in 2023, leading to a 30% drop in demand so far in 2024.
They also reversed their earlier conclusion that the Inflation Reduction Act tax credits increased demand for electric vehicles by 25%, implying a similar decline if the credits are repealed.
The analysts estimate that lower electricity demand will modestly limit long-term profit growth for electric infrastructure companies. Specifically, ETN’s growth would drop from 14% to 13%, HUBB from 16% to 15%, and PWR from 15% to 14%, reducing their five-year earnings power by 3%, 1%, and 3%, respectively.
Despite these risks, Bernstein believes the market has already absorbed much of the negative impact.
Shares down 2% (ETN), 3% (HUBB) and 1% (PWR) following the news indicate that investors have taken these headwinds into account. The company concludes: “This risk is largely priced in.”
