Tesla’s profits have long leaned on the sale of regulatory credits, but a quick turn in American policy may soon curb that cash flow and unbalance the company’s balance sheet. According to Reuters, the latest measures pushed by the Trump administration will abolish fines tied to the National Highway Traffic Safety Administration’s Corporate Average Fuel Economy standards, removing a key reason for legacy automakers to purchase the credits that Tesla creates whenever it sells another electric vehicle.

Policy Changes Upend Credit Market

Regulatory credits allow EV manufacturers like Tesla to earn revenue by selling credits to internal combustion engine automakers, offsetting their penalties for exceeding emission limits. These credits, which cost Tesla nearly nothing to produce, were pivotal in preventing a first-quarter loss this year. However, the recent legislative shift removes CAFE fines, reducing the incentive for ICE automakers like General Motors and Ford to purchase credits.

“They are making conventional ICE vehicles more competitive while making EVs less competitive,” said Batt Odgerel, a director at the Energy Policy Research Foundation, referring to Congress, Trump and the federal government.

Tesla’s credit sales are projected to total $2.17 billion this year, but analysts now warn that figure could drop significantly in the coming years.

Tesla’s Regulatory Credit Revenue Faces Sharp Decline As U.s. Policy Shifts

Financial Impact on Tesla

William Blair analysts estimate that CAFE standards account for roughly 75% of Tesla’s credit revenue. They now forecast a nearly 40% reduction to $1.5 billion in 2025, plummeting to $595 million in 2026, and disappearing entirely by 2027. This decline is faster than anticipated, with 14 analysts polled by Visible Alpha predicting a 21% drop this year alone.

Tesla has acknowledged that falling credit demand and prices could harm its financials, a concern amplified by weakening Model Y sales and aggressive price cuts. Building on that, the early termination of the $7,500 U.S. EV tax credit by September 2025 further pressures Tesla’s market position, benefiting ICE automakers.

Uncertain Future for Other Credit Sources

Beyond CAFE, Tesla relies on credits from the U.S. Environmental Protection Agency and California’s zero-emission vehicle program, but these face uncertainty due to proposed rule changes and legal challenges.

“That is certainly likely to be a big loss of revenue for automakers” that were selling credits, added Chris Harto, a senior policy analyst at Consumer Reports.

Tesla has reported more such sales than anyone else in the automotive sector. This shift could force Tesla to accelerate alternative revenue streams, such as its robotaxi program, though scaling it remains a complex challenge.

Implications for EV Owners and Industry

For EV owners, the loss of the $7,500 tax credit increases the cost of ownership, potentially slowing adoption. Tesla’s reduced credit revenue may also limit its ability to offer competitive pricing, affecting buyers seeking affordable EVs.

Meanwhile, traditional automakers gain a cost advantage, potentially slowing their transition to zero-emission vehicles. This raises broader questions about the pace of EV market growth in the U.S., where policy shifts could hinder progress toward stricter emissions goals.

Tesla’s ability to adapt—whether through innovation or new business models—will be critical to maintaining its edge in a rapidly changing regulatory landscape.