How Tesla's tax credit victory is a loss for Chinese battery maker CATL

Tesla's Model 3 finds itself eligible for the $7,500 U.S. tax credit on EVs. This news comes as Morgan Stanley analysts downgraded shares of Chinese battery maker CATL over concerns about how the U.S. EV tax credits could impact their business. Yahoo Finance automotive reporter Pras Subramanian breaks down how this news could impact EV pricing for American consumers.

Video Transcript

- Ahead of the opening bell, we got some movers for you, shares of Contemporary Amperex Technology, also known as CATL, fell in Chinese trading after Morgan Stanley slashed its rating to underweight on fears that Tesla will leave the battery maker in the dust. It comes as the Model 3 is now eligible for the $7,500 tax credit in the US. And there are implications of some requirements attached to that credit. Yahoo Finance's Pras Subramanian is here to explain. So Pras, good news, I guess, for Tesla, wannabe Tesla buyers in the US, but not great news for CATL.

PRAS SUBRAMANIAN: Yeah, some concern here for CATL or CATL China is a big LFP battery maker, makes batteries for many automakers. The news yesterday was Tesla's cheapest Model 3 now qualifies for the full EV tax credit. Tesla had used CATL battery cells in the past for the base Model 3.

It seems Tesla must have updated where the battery minerals are coming from or increased the value of North American components, which make up how you get the full credit. So we don't know what happened because neither Tesla nor the US government said exactly how they got that tax rate. But it's definitely true that some different batteries are being used here.

So Morgan Stanley concerned that automakers in the US will use North American battery makers and joint ventures more along the lines of let's say LG and GM and Tesla and Panasonic to take advantage of this government incentives. But we did see Ford signing a deal with CATL, this licensed tech and make batteries here in the US in Michigan. So they do have some options here beyond Chinese manufacturing.

- And Pras, while we have you, there's also some recent, of course, new pricing changes when it comes to Tesla in select states. What do we know about how they're trying to continue to kind of bring down the pricing based on tax credits?

PRAS SUBRAMANIAN: Yeah, so, and I wrote about this yesterday. So really interesting stuff here, so that Model 3 now, that base version, right, is qualified for that full $7,500 tax credit. But now if you go in states like California, they have their own $7,500 tax credit, so that brings that base Model 3 down to around $26,000, add in other incentives that Tesla is using on a regional basis. In California, for instance, there's a $2,000 incentive there. You can get a car for 23,000, a brand new Tesla Model 3, so a big deal there for some buyers, especially in California for the Model 3.

- Yes, indeed, and it looks like, by the way, that Tesla is making new highs for the year here, had a recent surge that is continuing today. Just checking to see how many days in a row Tesla's been up, 1, 2, 3, 4, 5, 6, 7, 8 sessions in a row, going into today's session that Tesla has been on the rise. So we'll see if it continues. Pras, thanks a lot, appreciate it.