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Tesla generated billions from the sale of regulatory credits.
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A recent change in policy has removed fines for car manufacturers who do not comply with emission standards, eliminating this source of income for the manufacturer of electric vehicles.
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Analysts predict a huge drop in demand for credits, harming Tesla’s results.
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These 10 actions could experience the next wave of millionaires ›
Investors in Tesla (Nasdaq: tsla) undoubtedly faced as much adversity in 2025 as in any time in the young history of the company. Currently, they are dealing with sales and lower profits from consumption reactions to Elon Musk’s political ambitions and the State of California trying to suspend the Tesla dealer license for 30 days, among other developments.
But there may be an even more important problem, which will have a serious financial impact for the manufacturer of electric vehicles (EV).
A big brewing problem for Tesla investors implies the sale by the regulatory credits company. These sales have always been part of the history of the manufacturer of electric vehicles, and for years, the company has generated billions of dollars selling regulatory credits to its competitors.
Essentially, the American government has set up an incentive system for car manufacturers to comply with environmental regulations. He filed credits to automotive companies that have respected emission standards and gave financial sanctions to those who did not meet standards.
What this has mean for car manufacturers who mainly sell petrol vehicles is that they had to buy regulatory credits from companies like Tesla, which only sells electric vehicles and does not face any penalty. However, the republican bill for tax and expenses adopted earlier in July abolishes the financial sanction for car manufacturers below emission standards. This means that the incentive to buy regulatory credits in Tesla has disappeared and that the request for credits could dry much faster than expected.
According to analysts of the financial service company William Blair, Tesla’s regulatory credit income should fall by 75% in 2026 before disappearing completely in 2027. So what is the size of an agreement?
The sale of regulatory credits by Tesla has generated $ 10.6 billion since 2019, and investors probably remember that the electric vehicle manufacturer would have lost money during the first quarter this year without the sale of these credits to strengthen the results. To say that the company may not exist without this source of income during its early years is not an exaggeration.
There is, however, a little silver lining for Tesla, because the company has long -term contracts with some of its competitors to buy these credits, and if the latter honor contracts, rather than trying to get out early, the regulatory sauce train could continue a little longer.
