Tesla (TSLA) Stock Plunges 5.11% as Regulatory Credit Loss and Brand Crisis Weigh on Profit Outlook

Tesla’s (TSLA) stock plunged 5.11% on October 2, 2025, hitting its lowest level since September 2025, with an intraday drop of 5.20%. The selloff reflects mounting concerns over the company’s financial resilience and strategic direction amid a confluence of regulatory, operational, and reputational headwinds.

The loss of regulatory credit revenue, a critical income stream since 2019, has significantly impacted Tesla’s profitability. A Republican-led tax bill passed in July 2025 eliminated penalties for automakers failing emissions standards, effectively ending the financial incentive for competitors to purchase Tesla’s credits. Analysts predict a 75% decline in this revenue by 2026, with complete disappearance by 2027, forcing Tesla to rely more heavily on its core EV business amid thinning margins and declining sales.

Elon Musk’s political activism, particularly his alignment with former President Donald Trump, has triggered a brand crisis. Market share in the U.S., Europe, and China fell by 9 percentage points in Q1 2025, despite global EV market growth. Tariffs on imported EV parts and Musk’s polarizing public statements have exacerbated consumer and investor uncertainty, leading to downward revisions of 2025 and 2026 profit projections by 22% and 16%, respectively.

Operational challenges further weigh on Tesla’s prospects. First-quarter 2025 deliveries dropped 13% to a three-year low, lagging behind the 29% growth in the broader EV sector. Aging vehicle models, reliability concerns, and price cuts to retain market share have compressed margins. Cost-cutting measures, including workforce reductions, risk long-term innovation and employee morale, critical for sustaining growth in EV and AI sectors.

Regulatory hurdles compound the pressure. California authorities are considering suspending Tesla’s dealer license over sales practices, threatening its direct-to-consumer model. Delays in regulatory approvals for robotaxi trials and scrutiny of autonomous driving technologies add uncertainty to high-growth opportunities. Legal battles could also set precedents for stricter state-level regulations, constraining Tesla’s flexibility in the U.S.

Speculative bets on AI and robotics remain unproven. While Musk highlights autonomous vehicles and humanoid robots as future value drivers, missed robotaxi deadlines and technical challenges raise execution risks. Analysts caution that current valuations reflect optimistic assumptions about AI-driven revenue, which may not materialize. These uncertainties, combined with core business challenges, have driven investor sentiment into a volatile wait-and-see mode.