William Blair downgraded Tesla shares, warning that sweeping policy changes under the “Big Beatufiul Bill” signed last Friday could undermine the company’s profitability.
President Donald Trump signed what he called the “Big Beautiful Bill” during a July 4 Independence Day ceremony at the White House.
The legislation eliminates both the $7,500 federal electric vehicle tax credit and Corporate Average Fuel Economy (CAFE) penalties, significantly weakening regulatory support for EV manufacturers.
William Blair analyst Jed Dorsheimer cut his rating on Tesla from Outperform to Market Perform, citing the combination of reduced consumer incentives and a sharp erosion in the company’s lucrative emissions credit business.
“While the $7,500 tax credit is likely to affect demand, the combination of a demand headwind and over $2 billion in profit from regulatory credits at risk may be too much for investors to bear,” Dorsheimer wrote in a note to clients on Monday.
He acknowledged that the removal of the EV tax credit had been “expected,” but said the elimination of CAFE penalties represents a more material and underappreciated threat to Tesla’s earnings outlook.
“Unlike the EV tax credit, we expect the reduction in regulatory credit revenue to result in a direct hit to profitability, prompting yet another across-the-board reset to Street models,” he wrote. “As such, we are downgrading to Market Perform.”
Previously, automakers that failed to meet fuel economy standards were required to either improve efficiency or purchase credits — including zero-emission vehicle (ZEV) credits from companies such as Tesla — to avoid steep fines.
Under the new legislation, those penalties are now effectively reduced to zero, removing a key driver of regulatory credit sales.
Tesla earned over $2.7 billion from regulatory credits in 2024, much of it through the sale of ZEV and CAFE credits to legacy automakers.
This high-margin revenue was the only reason Tesla reported a profit in the first quarter of 2025.
Tesla shares fell more than 7% in early trading on Monday, weighed down by both the downgrade and mounting political drama surrounding CEO Elon Musk.
The billionaire sparked controversy over the weekend by announcing plans to launch a new U.S. political party — a move that drew sharp criticism from Trump and triggered fresh investor concerns about Musk’s focus.
As of the time of writing, Tesla shares were down 6.5% in pre-market trading to $295, after hitting a one-month low of $291 earlier in the session.
