Tesla's Lucrative Credit Sales Imperiled by Trump's Rollback of EV Targets
Tesla Motors has generated billions in revenue through the sale of regulatory credits to automakers that have fallen short of federal electric vehicle (EV) sales targets. However, the company's lucrative sideline now faces uncertainty following President Donald Trump's executive order revoking a Biden-era mandate for 50% of new US vehicle sales to be electric by 2035.
Under current EPA regulations, automakers face fines for failing to meet strict fleet emissions targets. To avoid these penalties, they can purchase credits from companies like Tesla, which sells a high volume of EVs. This practice has been a significant contributor to Tesla's profitability, accounting for over a third of its net income in 2024.
However, Trump's reversal of EV targets could reduce the demand for Tesla's credits. As other automakers receive more time to meet emissions goals, their need for credits may diminish. Analysts anticipate this could significantly impact Tesla's revenue stream from credit sales.
Tesla's potential loss of credit revenue is compounded by Trump's administration's challenge to state-level emissions regulations. The president's executive order aims to terminate rules phasing out combustion engine vehicles in several states. This move could further reduce the demand for EV credits, as automakers would have less stringent emissions standards to adhere to.
Despite these challenges, Tesla may continue to benefit from credit sales in Europe and certain US states with their own emissions schemes. Additionally, the company's influential CEO, Elon Musk, has voiced support for cutting EV subsidies, potentially harming Tesla's rivals more than the company itself.
However, the proposed tariffs on Chinese imports could also adversely affect Tesla's business. Tesla has cautioned that tariffs would impact its profitability due to the company's reliance on Chinese-sourced components.
Overall, Tesla's lucrative credit sales operation is facing headwinds from the Trump administration's policies. The company may need to explore alternative revenue streams to maintain its financial performance in the changing regulatory landscape.