Tesla is about to lose one of its easiest and most profitable revenue sources, following the passage of President Donald Trump’s “Big Beautiful Bill.” The new legislation eliminates tax incentives for electric vehicles and cuts back on Corporate Average Fuel Economy (CAFE) requirements.
Under the old system, automakers that couldn’t meet CAFE standards could buy carbon credits from companies like Tesla, which consistently had a surplus. These credits turned into a billion-dollar lifeline for Tesla, helping stabilize its finances even during periods of weak sales.
Billions Earned From Credits
Over the last decade, carbon credits brought in about $11.8 billion for Tesla, according to data reported by InsideEVs. Analysts argue these funds were essential in keeping the company afloat. “These regulatory credit sales are the reason that Tesla exists today,” Gordon Johnson of GLJ Research said.
Reuters noted earlier this year that the credit sales were crucial for Tesla’s profitability, particularly in Q1 of 2025. Without them, Tesla would have reported a quarterly loss. Roughly half of its Q2 operating income — despite dropping 42% year over year — came directly from these credits.
Ironically, Elon Musk himself had called for the elimination of all credits and subsidies as recently as last year. At the time, he insisted Tesla should succeed without government assistance. But with sales falling globally and the end of the $7,500 EV tax credit making it harder for U.S. buyers to afford Teslas, the loss of carbon credits will deal a heavy financial blow.
Now, the credits that once acted as free cash for the EV maker are set to disappear entirely, leaving Tesla to navigate declining sales without one of its most reliable financial cushions.
Author’s Opinion
Musk spent years saying Tesla should not rely on government incentives, and now that the credits are gone, he may find out how much they truly propped up the company. The timing couldn’t be worse, with sales falling and competition heating up. Whether Tesla adapts by cutting costs, raising prices, or finding new revenue streams, this moment could be a turning point that tests whether the company can finally stand on its own.
Featured image credit: Paul Steuber via Unsplash
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