Electrical infrastructure stocks: Downside risks if Trump repeals EV tax credit

Investing.com — In a note to clients on Wednesday, Bernstein analysts assessed the potential downside risks to electrical infrastructure stocks if President-elect Donald Trump repeals the $7,500 electric vehicle (EV) tax credit, a move that is reportedly being considered as part of broader tax reform. 

According to Bernstein, while the immediate market reaction caused low single-digit declines in stocks like Eaton (NYSE:ETN), Hubbell (HUBB), and Quanta Services (NYSE:PWR), the longer-term impact may already be largely priced in.

Repealing the EV tax credit would remove a key tailwind for electrical distribution infrastructure spending. “EV charging tends to occur at home, and a step change in the EV installed base was a tailwind for investment on that side of the grid,” Bernstein noted. 

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’s rollback of EV subsidies in 2023, which led to a 30% drop in demand year-to-date in 2024. 

They also reversed their earlier conclusion that the Inflation Reduction Act’s tax credits boosted EV demand by 25%, implying a similar decline if the credits are repealed.

The analysts estimate that lower electricity demand would trim long-term earnings growth for electrical infrastructure companies modestly. Specifically, ETN’s growth would fall 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 accounted for much of the downside. 

Stock declines of 2% (ETN), 3% (HUBB), and 1% (PWR) following the news suggest that investors have factored in this headwind. The firm concludes, “This risk is largely priced in.”