Tesla’s long dependence on selling government regulatory credits is nearing an end, putting enormous pressure on Elon Musk’s electric car company to make money from its vehicles alone. Over the past decade, Tesla raked in $11.8 billion from selling carbon and fuel economy credits to other automakers, but that lucrative stream will dry up under new federal rules.
The credit system was designed to help automakers meet Corporate Average Fuel Economy (CAFE) standards. Companies that failed to meet benchmarks could buy surplus credits from Tesla to avoid heavy fines. But analysts at William Blair and Co. now project demand for these credits will collapse by 75 percent in 2026 and vanish entirely in 2027.
That’s a major blow, as Tesla has leaned heavily on regulatory credits to stay profitable. In some years, they accounted for nearly a third of the company’s revenue. Without them, Tesla must rely solely on car sales at a time when demand is weakening and competition from other automakers is heating up.
Adding to the challenge, the $7,500 federal EV tax credit—a key incentive for buyers—will expire September 30 under President Donald Trump’s new legislation. Automakers are scrambling to push vehicles off lots before the subsidy disappears. Tesla has warned customers on its website and through direct emails to complete purchases quickly in order to secure the discount.
Tesla is also grappling with an aging lineup and slowing sales growth, particularly in markets once seen as strongholds. With subsidies and regulatory loopholes closing, Musk faces the test of proving Tesla can thrive as a standalone car company rather than one propped up by government mandates.
Industry observers expect Tesla will need aggressive cost-cutting, new models, or both if it hopes to maintain its market share against rivals like Ford, Toyota, and Hyundai, who are pushing deeper into the EV market.
