Tesla's Regulatory Credit Revenue to Drop 75% Amid Policy Shift

Tesla faces a 75% drop in credit revenue due to a change in US policy that eliminates penalties for automakers not meeting emissions standards. The company earned $10.6 billion in regulatory credit revenue since 2019, which may disappear completely by 2027. Analysts expect credit sales to drop 75% in 2026 and potentially dry up as early as Q3 this year. Without regulatory credit sales, Tesla may resume reporting quarterly net losses.

Tesla is set to experience a substantial decline in its regulatory credit sales, which have been a significant source of revenue for the automaker. The company has earned $10.6 billion in regulatory credit revenue since 2019, according to CNN [1]. However, recent changes in US policy are expected to eliminate penalties for automakers not meeting emissions standards, thereby reducing the demand for these credits.

Analysts at William Blair and Co. predict that Tesla's regulatory credit revenue will drop by 75% in 2026 and potentially disappear as early as the third quarter of this year [1]. This decline could spell disaster for Tesla's financial future, potentially leading to ongoing losses. Gordon Johnson, an analyst, has stated that regulatory credit sales are "the reason that Tesla exists today" and that their loss could cause the company to resume reporting quarterly net losses [1].

The loss of regulatory credit sales is just one of many challenges facing Tesla. The company has also reported a record drop in sales in its last two quarters due to increased competition for electric vehicles (EVs) and backlash from some buyers to CEO Elon Musk's political activities [1]. Additionally, Tesla reported a plunge in profitability in the first quarter of this year and is forecast to report another steep drop in second-quarter results due on Wednesday [2].

Investors are closely watching Tesla's Q2 earnings, which are expected to show weak EV demand and delivery declines. However, the focus has shifted from EV deliveries to Tesla's autonomous and AI strategy, including the nascent robotaxi rollout in Austin and growing integration with xAI [2]. Despite the challenges, some investors see an opportunity in Tesla's transition from a carmaker to an AI powerhouse, with a potential $1 trillion valuation in autonomy and robotics [2].

References:
[1] https://www.cnn.com/2025/07/22/business/tesla-regulatory-credit-sales-revenue
[2] https://www.ainvest.com/news/tesla-q2-earnings-preview-eyes-autonomy-ai-austin-2507/