Tesla’s regulatory credit revenue — and profit — will likely plummet next quarter
The NHTSA has stopped issuing letters to automakers for violating fuel economy standards, gutting the market for regulatory credits.
Now that the National Highway Traffic Safety Administration is no longer issuing compliance letters to automakers for violating fuel economy standards, there’s effectively no US regulatory credit market. Regulatory credit revenue is a massive profit accelerant for electric vehicle makers, bolstering Tesla’s, Lucid’s, and Rivian’s bottom lines.
Rivian already took a $100 million revenue hit from the regulatory change, while Lucid said the credits “represent a significant share” of its revenue. Tesla, as the biggest EV maker, will face more revenue pain than its comparatively smaller rivals.
“While we’ve never planned our business around such sales, it will nonetheless impact our total revenues going forward,” Tesla CFO Vaibhav Taneja said on the company’s latest earnings call.
Analyst Troy Teslike estimates the US rollback will take a $255 million bite of Tesla’s revenue each quarter — more than $1 billion a year — going forward. In the second quarter, the company brought in $439 million in regulatory credit revenue globally. Given that it’s effectively a pure boost to profit margins, that revenue played an outsized role in generating Tesla’s $1.2 billion net income last quarter. Teslike estimates about 41% of Tesla’s regulatory credit revenue comes from the US, so expect these bars to be about half the size in the future:
