Could the US Government Buy 100,000 Tesla EVs?

24/7 Wall St. Insights

• The U.S. government has a goal that federal vehicles will be zero-emission by 2035.
• Tesla Inc. (NASDAQ: TSLA) may have the inside track to provide many of these electric vehicles.
• Also: Dividend legends to hold forever.

The Biden administration has set a goal that most federal vehicles bought by 2035 will be zero-emission. That year, it will end the purchase of gasoline-powered cars completely. The number of federally owned vehicles currently totals 380,000, of which just over 112,000 are cars. As the largest electric vehicle (EV) maker in the United States, Tesla Inc. (NASDAQ: TSLA) may have the inside track to provide many of these.

The Biden administration’s plans may be too ambitious. American EV sales have tailed off recently because of vehicle range, the number of charging stations, the price of EVs, rapid tire wear, and the fact that EVs do not hold a 100% charge in very cold weather. Charging stations could be challenging for the federal government because it operates vehicles in areas across the country, and chargers in some places are scarce.

One question is who inside the government decides which EVs it will use to hit the emissions target. Will it be by department so that the Department of Defense makes its own EV decisions while the Department of Transportation also makes its own? Alternatively, a central branch of the government could make all EV purchases.

Another question is whether the U.S. government will favor brands from U.S. manufacturers. If so, Tesla, Ford, and GM will be the suppliers, and companies like Toyota and Hyundai will be excluded.

Another issue is price. Will the lowest-cost supplier have the edge during purchase negotiations, or will the government buy cars based on features?

As the largest U.S. EV company by market share, Tesla should benefit from the federal government purchase program as much as any other manufacturer.

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