Tesla faces fresh risks to a big income stream

Tesla faces risks to its income stream from selling regulatory credits to other automakers under vehicle emissions and efficiency rules. The credits are awarded to companies like Tesla that exceed emissions standards, and producers of gas-powered vehicles buy them to meet CO2 and mileage standards. Tesla's credit sales were $595 million last quarter and totaled $3.36 billion in the five quarters through Q1 of 2025. Republicans on the Senate's commerce committee proposed ending civil penalties under the Transportation Department's fuel economy rules, which would effectively end the market for CAFE credits. The provision would modestly cut auto prices by ending requirements on automakers that conform to the wishes of DC bureaucrats rather than consumers. Separately, the Department of Transportation issued an "interpretive rule" that bars consideration of EVs when setting mileage rules, paving the way for less aggressive requirements and less need for buying credits. The regulatory credit market was already facing risks before the news, with the EPA planning to rescind Biden-era EPA carbon emissions rules and the House-passed reconciliation bill and Senate GOP proposal also nixing them. The potential loss of credit revenues comes at a perilous time for Tesla, whose sales have slumped in recent quarters, and CEO Elon Musk's rightward turn and alliance with Trump are among the reasons why. If the administration gets its way on all its stated policy objectives around vehicle regulations, there will no longer be any market in the US for Tesla's regulatory credits.