Tesla TSLA stock started to slump early Tuesday, reversing premarket gains on the first trading day after Donald Trump’s inauguration. The decline followed the new President’s decision to scrap a pro-EV policy enacted by his predecessor. While the stock finally recouped some of the day’s losses, it ended the day with a 0.6% decline.

Trump Revokes Key Biden-Era Policies on Day One

In a swift move, Trump revoked 78 executive orders issued by former President Joe Biden, including a mandate requiring half of all new U.S. cars manufactured by 2030 to be electric. This policy rollback signals a sharp pivot from Biden’s clean energy initiatives.

The policy reversal sent shockwaves through the EV sector. Lucid LCID shares fell nearly 7%, Rivian shares RIVN fell 6.5%. In contrast, traditional automakers like General Motors GM (up 5.7% on Jan. 21, 2025) and Ford (F) stock (up 2.5% on Jan. 21) saw their stocks rise in response to the news.

Subsidies and Tax Credits Under Scrutiny

Trump also directed his administration to review “unfair subsidies” and “market distortions” that favor EVs. Biden had leveraged funds from the Inflation Reduction Act to provide grants and extend tax credits aimed at bolstering the EV industry. Notably, the first EV tax credit was introduced during president George W. Bush’s administration.

Not Much of a Threat to Tesla?

Tesla CEO Elon Musk, a staunch supporter of Trump, downplayed the impact of the rollbacks on his company, stating: “I guess there would be, like, some impact, but I think it would be devastating for our competitors and for Tesla slightly,” as quoted on Yahoo Finance.

Musk suggested that Tesla’s long-term focus on autonomy would position the company well despite policy changes. Some analysts believe that Tesla's unrivaled scale and scope in the EV industry could provide Musk and the company with a significant competitive advantage, especially in an environment without EV subsidies (read: Tesla ETFs Soar on Trump Win: Should You Buy, Hold or Sell?).

This, combined with the potential for higher tariffs on Chinese imports (as promised by Trump), would likely keep cheaper Chinese EV manufacturers like BYD and Nio NIO from flooding the U.S. market in the coming years.

“Trump Trade” and Tesla’s Recent Surge

Despite Tuesday’s decline, Tesla shares have surged more than 60% since Trump’s election victory in November. Investment bank Piper Sandler has increased its Tesla share price target by an impressive 59%, setting a new target of $500. In a note released earlier Tuesday, the bank acknowledged potential challenges for Tesla in the first half of the year but reaffirmed the company as its top "Buy and Hold" recommendation. Tesla’s ability to maintain its leadership in the EV industry apparently impressed the banker.

Tesla-Heavy ETFs in Focus

If you have faith in Tesla’s long-term fundamentals and if you believe that Trump’s second term could create some indirect opportunities for Tesla, you should keep a close eye on Tesla-heavy exchange-traded funds (ETFs). After all, the group — named as the Department of Government Efficiency, or "DOGE" — is being co-run by Tesla CEO Elon Musk. Tesla itself is also reshaping it as an artificial intelligence company. Hence, Tesla ETFs can be bought on the recent dip.

Tesla-heavy ETFs include T-Rex 2X Long Tesla Daily Target ETF TSLT, Simplify Volt TSLA Revolution ETF TESL and ARK Innovation ETF ARKK. Investors should note that the ETF approach always minimizes company-specific concentration risks.

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