<div id="readability-page-1">Tesla (TSLA -0.67%) stock is in a tricky place. Analysts expect earnings to drop by nearly 30% next quarter compared to the corresponding quarter last year. Yet, on a price-to-sales basis, the stock's valuation remains sky-high at 12.6. On the other hand, Rivian Automotive, another electric car stock, trades at just 2.9 times sales. Tesla stock seems priced for big growth despite tepid profitability growth ahead. But there's a risk factor detailed below that could put an even bigger dent in Tesla's growth trajectory for years to come. Every investor needs to monitor this one thing carefully. <h2>This one risk factor could punish Tesla stock</h2> Right now, more than 90% of Tesla's vehicles sales stem from just two models: the Model 3 and Model Y. Both have starting base prices of less than $50,000. Seeing as the majority of Americans are looking to spend less than $50,000 on their next vehicle purchase, according to a 2024 study by AutoPacific, Tesla is in a solid place to attract the tens of millions of budget buyers in the U.S. To make Teslas even more affordable, buyers have long been able to qualify for federal tax credits that can total up to $7,500. Both the Model 3 and Model Y qualify for these tax credits. Even some of Tesla's pricier models, like the entry-level Cybertruck, qualify. The result is a lower effective purchase price for consumers, and thus more demand for Tesla's products. There's just one problem: Federal tax credits may be on the way out. <div><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MjI3NzYvZ2V0dHlpbWFnZXMtMTQ1ODIzNDc1OS0xMjAxeDY5OS1kMmMwNTE2LmpwZyZ3PTcwMA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="407" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MjI3NzYvZ2V0dHlpbWFnZXMtMTQ1ODIzNDc1OS0xMjAxeDY5OS1kMmMwNTE2LmpwZyZ3PTcwMA"/>Image source: Getty Images. </div> President Donald Trump's new bill calls for the immediate elimination of federal EV tax incentives. What would happen to Tesla's sales if this were to happen? More than half of all EV buyers say that tax credits were a deciding factor in their purchase. When EV incentives abruptly ended in Germany in 2023, EV sales fell by more than 16% over the next six months. If tax credits are eliminated in the U.S., expect Tesla's sales and earnings to drop in response. </div>

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Tesla's stock faces challenges as analysts predict a nearly 30% drop in earnings next quarter, while its price-to-sales ratio remains high at 12.6. The company's reliance on the Model 3 and Model Y, which are priced under $50,000, positions it well for budget-conscious buyers. However, proposed legislation to eliminate federal EV tax credits could significantly impact sales, as over half of EV buyers cite these credits as a key factor in their purchase decisions. A similar situation in Germany led to a 16% drop in EV sales after incentives were removed.

- Tesla's stock faces challenges as analysts predict a nearly 30% drop in earnings next quarter, while its price-to-sales ratio remains high at 12.6.  
- The company's reliance on the Model 3 and Model Y, which are priced under $50,000 and qualify for federal tax credits, has positioned it well among budget-conscious buyers.  
- However, proposed legislation to eliminate these tax credits could significantly impact Tesla's sales and earnings, as evidenced by a similar decline in EV sales in Germany after incentives were removed.

1 Thing Every Tesla Investor Needs to Watch Right Now