Tesla CEO Elon Musk is throwing his support behind Donald Trump's presidential campaign, but a potential second term has left Wall Street split on whether it will be a boon or bust for the EV maker.

At the heart of the debate is the Biden-era $7,500 EV tax incentive. The former president, his VP pick J.D. Vance, and a number of their Republican colleagues have long opposed Biden's EV initiatives. Senator Vance introduced the Drive American Act last fall, aimed at eliminating over $100 billion in existing EV subsidies and replacing them with credits for gas or diesel-powered vehicles.

However, a rollback in EV credits could help Tesla (TSLA) “widen the gap and technology lead” over its rivals, Wedbush’s Dan Ives told me. The world's most valuable automaker is better positioned in an unsubsidized environment compared to younger EV companies that are burning through cash.

“It’s a big advantage for Tesla and Elon Musk,” Ives said, adding that Tesla’s scale and scope is “unmatched.”

But not everyone on Wall Street is buying the argument that a Trump presidency is a positive for Tesla.

Guggenheim’s Ron Jewsikow told me he “struggles” to see it as anything but negative, calling the EV tax credit a “key affordability enabler” for Tesla.

Jewsikow also noted the risk of higher tariffs, as Tesla, like other auto manufacturers, uses Chinese-sourced batteries.

Wall Street is closely tracking Musk’s support for Trump. Musk, who endorsed Trump shortly after the failed assassination attempt on July 13, wrote in a post on X that Trump's vice president pick is an "excellent decision," later adding that a Trump-Vance ticket "resounds with victory."

He also reportedly plans to pledge $45 million per month to support the former president's White House bid.

Throughout Trump’s campaign, he has proposed implementing a 60% tariff on all Chinese imports, a move that would likely escalate the ongoing trade war. That’s compared to the current administration’s recent decision to raise the tariff rate to 25% for Chinese lithium-ion EV batteries and battery parts.

Trump’s tariff talk has caught the attention of others on Wall Street as analysts weigh the implications of a Trump presidency on the automotive sector beyond Tesla.

RBC’s Tom Narayan told me Trump’s “erratic” behavior during his first four years in office has left the auto industry uneasy, and many automakers view his past threats as a potential challenge to their business if he were to be elected for a second term.

“In 2019 he threatened to put tariffs on Canadian aluminum and that scared everybody, but he never wound up doing it. And then he threatened to put tariffs on Europe. It’s the erratic nature of threats that the auto industry does not like,” Narayan said.

While the exact impact of a Trump presidency on Tesla is still murky, there’s growing consensus that a second term will likely slow EV adoption and hurt the sector overall.

“It doesn't necessarily sink Tesla's ship, but it does sink some ships. It’s certainly negative for everyone,” Jewsikow said.

That sentiment was echoed by Ives. “Trump would be negative for Detroit and the EV transformation of GM (GM) and Ford (F),” he said. “And a major headwind for core EV players not named Tesla.”

The debate around the election's impact comes amid shifting sentiment toward Tesla. Better-than-expected second quarter deliveries prompted an 11-day rally in the stock before shares briefly sold off this week on reports of the company delaying its robotaxi unveiling to the fall.

The stock is up 40% since the start of June.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].

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