Tesla (TSLA) stock is sliding on Monday after CEO Elon Musk’s latest foray into politics once again challenges President Trump. Separately, Wall Street is growing concerned over the loss of EV tax credits and regulatory credits stemming from Trump’s “One Big Beautiful Bill.”
Over the weekend, Musk polled users on X about whether he should start an independent party called the America Party to challenge the government’s status quo. Musk continued his complaints that Trump’s bill would do nothing to rein in the deficit and offers little in terms of benefits to the American people.
“By a factor of 2 to 1, you want a new political party and you shall have it!” Musk said. “Today, the America Party is formed to give you back your freedom.”
Tesla stock closed down roughly 6.8% in Monday trading.
Trump and Musk supporters hoped a recent detente would settle the matter, but it erupted again with Musk’s latest foray.
“I am saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks,” Trump responded in a Truth Social post. “He even wants to start a Third Political Party, despite the fact that they have never succeeded in the United States – The System seems not designed for them.”
Musk’s past strong critiques of the bill led to a massive falling out with Trump, with Tesla and Musk’s other businesses like SpaceX caught in the crosshairs.
The battle between the two was too much for even Tesla bulls and investors to bear, who saw the stock pummelled a few weeks back before recovering.
“Very simply Musk diving deeper into politics and now trying to take on the Beltway establishment is exactly the opposite direction that Tesla investors/shareholders want him to take,” Wedbush analyst Dan Ives wrote. “After leaving the Trump Administration and DOGE there was initial relief from Tesla shareholders and big supporters … That relief lasted a very short time and now has taken a turn for the worst with this latest announcement.”
As if the political battles weren’t enough, Trump also responded to a feature of the bill Musk privately groused over.
“It is a Great Bill but, unfortunately for Elon, it eliminates the ridiculous Electric Vehicle (EV) Mandate, which would have forced everyone to buy an Electric Car in a short period of time,” Trump said on Truth Social. “I have been strongly opposed to that from the very beginning.”
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The loss of the $7,500 tax credit, which will expire on September 30, would be a huge loss from a demand point of view for EV makers like Tesla but also legacy automakers like GM and Ford. Tesla’s second quarter deliveries missed the mark despite full availability of the EV tax credit.
But the bill went further and threatened a big moneymaker for Tesla — regulatory credits sales.
“Instead of dismantling the CAFE [EPA fuel economy] standards, the BBB removed the teeth by reducing the fines for not hitting the mile-per-gallon targets to zero. This followed Congress’s removal in May of the California Air Resources Board’s (CARB) ability to enforce stricter regulations than federal EPA mandates,” William Blair’s Jed Dorsheimer wrote in a note to clients on Monday.
Dorsheimer explained that the combined result means automakers that do not meet these standards no longer incur fines, eliminating market demand for Tesla’s credits.
Tesla earned $2.8 billion in revenue from selling credits in 2024, or 16% of the company’s total gross profit.
“We estimate that 75% of Tesla’s regulatory credit revenue is related to the CAFE standards, which we account for in our model from the third quarter of this year and zero out in 2027,” Dorsheimer wrote, resulting in a big hit to Tesla’s bottom line.
Blair and Dorsheimer downgraded Tesla stock to Market Perform (the equivalent of Hold) from Outperform (Buy).
“We expect the impacts from the BBB to sour momentum and [Tesla’s] multiple premium to be put under pressure,” Dorsheimer wrote. “After Street estimates reset, we will look for more datapoints on the robotaxi rollout to rebuild investor confidence.”
Pras Subramanian is the lead auto reporter for Yahoo Finance. You can follow him on X and on Instagram.
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