Tesla's Revenue Dries Up Amid Sales Slump and Regulatory Credit Removal

Tesla is set to lose a significant source of revenue as regulatory credit sales, which brought in $10.6 billion since 2019, are expected to dry up due to a Republican tax and spending bill that removes the financial penalty for automakers to purchase these credits. Analysts predict a 75% fall in regulatory credit revenue next year and complete disappearance by 2027, which could result in a direct hit to Tesla's profitability.

Tesla is set to lose a significant source of revenue as regulatory credit sales, which brought in $10.6 billion since 2019, are expected to dry up due to a Republican tax and spending bill that removes the financial penalty for automakers to purchase these credits. Analysts predict a 75% fall in regulatory credit revenue next year and complete disappearance by 2027, which could result in a direct hit to Tesla's profitability.

The bill, passed earlier this month, eliminates the financial penalty for automakers that fail to meet emissions standards, removing their incentive to purchase credits from Tesla. This change comes at a critical time for Tesla, which has been facing a sales and profit slump [1].

Tesla's regulatory credit sales have been a crucial revenue stream, often exceeding the company's total net income in certain quarters. For instance, in the first quarter of this year, regulatory credit sales alone brought in more than the company's total net income. This revenue has been particularly important in the past, helping Tesla navigate through severe cash crunches during its early years [1].

Analysts predict that Tesla's regulatory credit sales could vanish as quickly as the third quarter of this year or the start of 2026, potentially causing the company to start reporting quarterly net losses once again. Piper Sandler analyst Alex Potter, however, notes that Tesla will still book around $3 billion in credits this year and $2.3 billion in 2026, but concedes that the long-term impact of the regulations could be significant [2].

The loss of regulatory credit sales is just one of many challenges Tesla is facing. The company reported a record drop in sales in its last two quarters due to increased competition for EVs and backlash from some buyers to CEO Elon Musk's political activities. Tesla also 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 [1].

While the immediate impact of the regulatory credit sales loss may be mitigated by existing long-term contracts with legacy automakers, the long-term outlook is uncertain. The company will need to diversify its revenue streams and improve its core business to navigate this challenging period.

References:
[1] https://www.cnn.com/2025/07/22/business/tesla-regulatory-credit-sales-revenue
[2] https://www.benzinga.com/markets/tech/25/07/46536292/trumps-new-zev-credit-regulations-arent-as-bad-for-elon-musk-says-piper-sandler-tesla-will-still-book-around-3-billion