Editor’s Note: A year ago, I related my most recent car buying experience with you (“Pumping the Brakes on New Car Sales”). As I explained then, one of our cars finally bit the dust so it was time for a new one.

I considered getting an electric vehicle (EV), but I wasn’t comfortable enough with my understanding of the different technologies to pull the trigger. Instead, I opted for a standard internal combustion (ICE) engine vehicle in the form of a Ford Bronco Sport.

I’m glad I did. The car is everything I hoped it would be, and it gets better highway mileage than I expected. I may end up with a sexier EV one day, but for now I am content cruising along in my boxy SUV.

Turning Out the Lights on Solar

Another reason why I’m glad I did not opt for an EV was the Senate’s decision to end incentives for wind and solar energy projects in its version of the President Trump’s “big, beautiful bill.” As currently conceived, the Senate version of the bill would phase out most of those tax credits by 2028.

I won’t argue the merits of that decision here. Whether you agree with it or not, it may soon be a reality that will have repercussions throughout the global energy markets. It may also set a precedent for all forms of energy generation that require government subsidies to remain solvent.

If it does, the electric vehicle sector may soon have a problem, too. Most EVs are manufactured at a loss, some of which is offset by various forms government subsidies including tax credits, financial grants, and other financial incentives.

Taking All the Credit

We got a whiff of what that might mean for the EV market last month after Elon Musk lambasted President Trump’s proposed legislation as a “disgusting abomination.” In response, Trump claimed that Musk was upset because he removed the electric vehicle tax credit from his bill.

Last year, more than $2 billion in EV tax credits were paid out in the United States. At that time, purchasing a new EV qualified the buyer for up to a $7,500 tax credit. Buying a used EV was worth up to $4,000 in credits. A lot of that money indirectly went to Tesla, the top-selling EV manufacturer in the United States last year.

Eliminating those credits will influence consumer behavior. At some point, the future potential cost savings of driving a more fuel-efficient vehicle becomes less than the higher upfront cost of purchasing it. In that case, more car buyers might make the same decision as I did and opt for an ICE vehicle instead of an EV.

That remains to be seen, but Tesla has other problems to contend with that I documented last week. As I said then, “Musk should focus on improving the company’s manufacturing efficiency. For better or worse, Tesla is in the EV business.”

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Invesco Solar ETF

Tesla is also in the energy generation business. In fact, that unit of the company is doing well. During the most recent quarter, Tesla’s Energy Generation and Storage revenue increased 15 percent on a year-over-year basis.

Growing revenue is one thing but being able to increase sales while remaining profitable at the same time has proved elusive for most renewable energy businesses. For many of them, eliminating the tax credits is all but a death knell.

That is why I was surprised to see the Invesco Solar ETF (NYSE: TAN) drop only 10 percent the day that news became public (circled area in the chart below). Although that is a big loss for any stock in just one day, it puts it back to where it was five months ago when the second Trump administration entered the White House.

I was expecting a much bigger drop than that, perhaps 20 percent or more. Nearly three-quarters of the fund’s holdings are small-cap stocks with limited financial resources. Half of them are domiciled overseas, with Chinese companies representing roughly 18 percent of the fund’s total net assets.

One Way or Another

I am convinced there is an investment opportunity here. Wall Street’s muted reaction to what could be an existential threat to a large portion of the renewable energy sector means one of two things: either the renewable energy tax credits will not be eliminated by the time Trump’s bill is passed, or a lot of companies in the renewable energy sector are in for a lot more pain later this year.

For that reason, I expect renewable energy stocks to either rebound strongly or drop much further in the months to come. And since I don’t know which way they will go, I believe an options strategy known as a straddle is the way to play this one.

To do that, I must buy a call option (which increases in value when the price of the underlying security goes up) and a put option (which increases in value when the price of the underlying security goes down) with the same strike price and expiration date.

Yesterday, I could buy a call option on TAN that expires on December 19 at the $32 strike price for $4.30. At the same time, I could buy a put option with the same strike price and expiration date for $3.20. That makes the total cost for putting on this trade $7.50.

In other words, I am betting that TAN will either rise above $39.50 ($32 strike price plus $7.50 total options cost) or fall below $24.50 ($32 strike price minus $7.50 total options cost) within the next six months. If it does not, then I will lose money on this trade. But if I my hunch proves correct, TAN should move far enough one way or the other to make this trade profitable.