Tesla Facing Potential Financial Struggles Due to Elimination of Electric Vehicle Incentives as Peruded by Musk's Statements
Tesla Braces for Challenges Amidst Elimination of Federal EV Tax Credits
The electric vehicle (EV) industry is facing a significant shift following the signing of the One Big Beautiful Bill Act on July 4, 2025. This legislation, which ends federal EV tax credits, is set to impact Tesla's earnings from the fourth quarter of 2025 through the second quarter of 2026.
The removal of the $7,500 federal tax credit for new EVs and the $4,000 credit for used EVs is expected to increase consumer costs, potentially leading to slower sales for Tesla during this period. Tesla's Chief Financial Officer, Vaibhav Taneja, has mentioned that the bill will lower Tesla's sales of regulatory credits.
The bill also affects the attractiveness of Tesla’s more affordable EV models to buyers, as they will no longer benefit from subsidies that effectively lowered purchase prices. This could put pressure on Tesla to either lower prices or absorb reduced margins to maintain sales volumes.
Moreover, the bill curtails key subsidies that had previously supported US EV manufacturing and supply chain investments, further threatening Tesla’s production competitiveness and battery innovations.
Despite these challenges, Tesla's position as the highest-volume and only consistently profitable EV maker in the US might allow it to gain market share relative to competitors who will struggle even more without subsidies. This increased market share and scale could eventually lower Tesla’s production costs compared to rivals, somewhat offsetting the bill’s negative effects.
Tesla's second-quarter performance reflects these challenges. The company's overall profits and revenues decreased by 16% and 12%, respectively, compared to the same period in 2024. Tesla's car revenues fell 16% to $16.7 billion in the second quarter of 2025, and the company delivered approximately 384,000 cars, a drop of 13% from the prior-year quarter.
In response to these challenges, Tesla leaders have emphasized the company's ambitions in robotics, with a focus on autonomy for vehicles and Optimus robots. Elon Musk expects Tesla to produce prototypes of the third version of Optimus by the end of 2025, followed by production at scale in 2026, and rapid scaling up from there. If Tesla is not producing roughly 100,000 Optimus robots per month in 60 months, Musk would be shocked.
However, Tesla may not be able to guarantee delivery orders placed in the later part of August and beyond due to a limited supply of vehicles ahead of Sept. 30. Shares of Tesla (Ticker: TSLA) fell more than 4% in after-hours trading on July 23 and slumped more than 7% the next morning, losing more than 20% of their value over the past six months, reducing the company's market capitalization to about $990 billion.
Tesla leaders did not provide guidance for the rest of 2025, citing uncertainties in global trade, fiscal policies, cost structure, and demand for durable goods. The company's focus is on building and delivering as many cars as possible in the next 70-odd days, making the production of the more affordable car a fourth-quarter event.
In the second quarter of 2025, Tesla sold $439 million in tax credits. Despite the challenges, Tesla's leaders remain optimistic about the company's future in the EV industry. CEO Elon Musk stated that Tesla could have rough quarters in Q4, Q1, or Q2 of 2025.
References: 1. Tesla's Q2 2025 Earnings Call Transcript 2. Tesla's Q2 2025 Production and Delivery Update 3. One Big Beautiful Bill Act Analysis for Tesla 4. Impact of One Big Beautiful Bill Act on Tesla
- In the face of the elimination of federal EV tax credits, the financial health of the automotive industry, particularly Tesla, is expected to be affected due to increased consumer costs and potential slower sales, as well as a reduction in sales of regulatory credits.
- The removal of subsidies for US EV manufacturing and supply chain investments, as stated in the One Big Beautiful Bill Act, could threaten Tesla's production competitiveness and innovation in battery technology.
- Amidst these challenges, Tesla's leaders are shifting their focus towards the technology sector, with ambitious plans for autonomous vehicles and Optimus robots, hoping to lower production costs and maintain sales volumes in the long run, despite facing uncertainty in global trade, fiscal policies, and demand for durable goods.
