Latest news with #regulatorycredits
Yahoo
13-07-2025
- Automotive
- Yahoo
Prediction: Tesla Might Lose This $2.76 Billion Revenue Source That Is Nearly 100% Profit
Tesla will soon lose a critical profit source. This loss will make exciting growth opportunities more difficult to pursue. These 10 stocks could mint the next wave of millionaires › The future of Tesla (NASDAQ: TSLA) appears very bright. Some experts believe the company's new robotaxi service could add more than $1 trillion in value by the end of 2026. But there's one challenge few investors are paying attention to. This challenge could swiftly eliminate one of Tesla's most profitable revenue sources. In recent years, nearly every electric car stock has benefited from automotive regulatory credits. These credits are earned under both state and federal programs, in both the U.S. and abroad. While each program differs in specifics, these credits are generally earned when a company sells low-emissions vehicles. These companies can then sell these credits to automakers that do not sell enough low-emission vehicles. For example, Stellantis bought roughly $2.4 billion of European and U.S. regulatory credits from Tesla between 2019 and 2021. The idea behind these credits is to encourage investment in and production of climate-friendly transportation options. That is, these credits are designed specifically to spur adoption of things like electric vehicles (EVs). Over the years, these credits have certainly helped keep EV makers like Tesla, Rivian, and Lucid Group financially viable. Rivian recently generated the first positive gross margins in its history, largely thanks to the sale of these credits. Besides a bit of overhead, the sale of these credits results in nearly 100% profit margins -- a huge boon for capital-intensive businesses like auto manufacturing. Soon, federal regulatory credits in the U.S. are expected to be eliminated due to the passing of President Donald Trump's "big, beautiful bill." According to The Verge, "The bill, which was signed by Trump over the weekend, would eliminate tax credits for EV purchases, zero out fines for automakers who exceed fuel-efficiency targets, and roll back other incentives for wind and solar power." That second point, zeroing out fines for automakers that miss fuel efficiency targets, essentially negates any value in purchasing these credits from an automaker like Tesla. In short, Tesla will very likely lose its ability to accrue and sell federal credits in the U.S. -- an immediate and sizable hit to both revenues and profits. There are a few important details to stress about the elimination of federal automotive regulatory credits. First, these eliminations affect the U.S. only. While other countries may shift their own policies, they will, for now, remain intact. Second, these eliminations will only affect federal credit programs, not state programs like California's or New York's. Critically, Tesla does not break down its regulatory credit sales by state versus federal, or even U.S. sales versus international. Therefore, it's difficult to gauge the exact effect from the elimination of federal U.S. programs. Some analysts estimate that roughly 75% of this revenue comes from U.S. sources. Within that portion, most is likely derived from California's state-level program, since that program accounts for the majority of credit value in the U.S. overall. Last quarter, Tesla's net income plunged 71% versus a year ago to $409 million. Regulatory credits sales, meanwhile, were $595 million last quarter, exceeding a total of $3.3 billion over the last five quarters. While Tesla won't lose access to most of these credits, they are clearly critical to keeping the company profitable. Tesla is one of the only companies in the world capable of pursuing huge growth opportunities like a global robotaxi service. If profits drop by $100 million to $200 million per quarter, however, pursuing these initiatives will grow more challenging. In short, the elimination of federal regulatory credits in the U.S. won't kill Tesla. But it will make growth more difficult moving forward -- a critical factor for long-term investors to consider. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. 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Yahoo
13-07-2025
- Automotive
- Yahoo
Prediction: Rivian Could Lose This $325 Million Revenue Source That Is Nearly 100% Profit
Rivian is set to lose automotive regulatory credits that it has been able to sell to other automakers. Shares remain cheap enough for long-term investment. 10 stocks we like better than Rivian Automotive › Rivian Automotive (NASDAQ: RIVN) has an exciting future. This year, the electric vehicle (EV) company achieved several consecutive quarters of positive gross margins. And early next year, management expects to begin production of three new vehicles, all priced under $50,000. That could attract tens of millions of new potential buyers to Rivian's lineup. Despite the positives, there are some challenges ahead, including one that could eliminate a crucial $325 million profit source. For years, EV manufacturers have relied on government subsidies to increase demand for their products and help offset the steep cost of scaling up a capital-intensive business. These subsidies have generated billions of dollars in extra cash flow for EV producers over the decades. Several subsidies, however, are likely on their way out. Following the recent signing into law of President Donald Trump's budget bill -- the so-called "Big Beautiful Bill" -- EV tax credits will be phased out by the end of 2025. Several EV stocks experienced analyst downgrades on the news. Car buyers are increasingly cost conscious. Recent surveys suggest that more than 80% of them would cancel their orders if prices rose by 25%. The elimination of federal tax credits, which can total up to $7,500 per buyer, will effectively make EVs more expensive -- a strong headwind. But there's another program that could be even more destructive to the financial viability of EV makers like Rivian. In 2024, Rivian generated $325 million in revenue from the sale of automotive regulatory credits. State and federal governments were offering these credits as a way to spur production of low-emission vehicles. EV makers like Rivian earn them for producing low-emission vehicles. They can then sell these credits to other automakers that fail to produce enough low-emission vehicles. Apart from a little overhead, the sale of these credits results in essentially a 100% profit margin. In the fourth quarter of 2024 alone, Rivian sold roughly $300 million worth of regulatory credits. The company's total gross profit, meanwhile, was around $170 million. Without the sale of these credits, therefore, the company would have produced a sizable negative gross profit. The new budget bill calls for the elimination of fines for noncompliant automakers. This essentially eliminates any incentive for these automakers to buy excess regulatory credits from their fellow automakers. Will this result in a huge reduction in revenue and profit for Rivian? To answer that question, a few details need to be resolved. It's important to note that only federal regulatory credits will be affected. Credits earned under other government programs -- such as those in California or China -- won't be eliminated. How much of Rivian's credit sales stem from federal programs? It's tough to tell, given that the company doesn't break down credit sales by source. But analysts for Tesla believe around 75% of its credits are earned in the U.S., with maybe half coming from federal programs. These are very rough estimates, but using these figures, it's possible that Rivian would have generated around $120 million less in credit sales last year without federal programs -- or around $120 million less in profit. Given that it produced around $170 million in gross profit last year, the elimination of federal regulatory credits would still have left it with around $50 million in gross profit -- not bad for a business needing to prove to investors that it can sell its vehicles at a profit. Trading at just 2.8 times sales, expectations for Rivian are already low. And the elimination of federal regulatory credits won't sink the company on its own. But the company's growth timeline is now likely longer than previously expected. The company will have less cash to invest and may need to shelve some growth initiatives to keep the launch of its mass market vehicles on schedule. Still, for patient investors willing to look far beyond current subsidy changes, Rivian remains a promising long-term growth stock. Before you buy stock in Rivian Automotive, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Rivian Automotive wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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Yahoo
07-07-2025
- Automotive
- Yahoo
Tesla latest: Stock slides, Elon Musk's 'America Party,' & more
Tesla (TSLA) stock dropped as Elon Musk and President Trump's feud heats up over Musk's potential "America Party," while the loss of regulatory credit revenue and stronger competition also weigh on the stock. Yahoo Finance Senior Reporter Pras Subramanian joins Market Catalysts to explain what all of this means ahead of Tesla's next earnings report. To watch more expert insights and analysis on the latest market action, check out more Market Catalysts here. First up shares of Tesla down this morning as the feud between CEO Elon Musk and President Trump continues to heat up with the president saying Musk is quote off the rails with his decision to potentially start his own political party. Musk for his part saying America's current parties are quote bankrupting our country with waste and graft. Yahoo finances Pras Subramanian joins us now. So investors thought they were done with this, right? They thought that Musk was done with politics, they were going to get to move on, not so fast. You know, I think we all sort of knew that these two just couldn't not go after each other. Musk was just too tempted to weigh in on on on the BBB bill. And he did and he and he then we saw what happened. Trump responded, same Musk off the rail. So here we go again. Investors are concerned about the Trump Musk feud and then what it means for Tesla, right? With we already saw the EV tax credits going away in the new BBB, plus also more concern is regulatory regulatory credits that Tesla sells, those are not going to be less valuable and that's a big hit to their bottom line. So that's a problem with SpaceX too, right? They're connected to Musk and all that Trump stuff and NASA. A lot of problems there. And this is on top of what we're seeing with demand issues. Tesla sales going down in Q2 with the full tax credits still available. You're seeing people going to competitors, more competition, better products from Legacy automakers. That's a big problem. So the Musk angle, going after Trump, better cars, better competition, it's all sort of coming to a head here for Tesla. And we're seeing the shares sort of take it. Now I mean, look, the stock still trades I think 75 times forward earnings. I mean, which is still a very very big premium. Yeah, and Jed Dorsheimer over at William Blair also downgraded the stock this morning. And I thought it was really interesting because most of the talk around the big beautiful bill has been about the EV tax credits going away. But he pinpoints another aspect of it. He says it gets rid of the fines on companies that don't have enough tax credits. So in other words, it basically takes away the market that Tesla has had for selling its EV tax credits. The regulatory credits, yes. Because of the fact that you don't need to pay fines for the your full fleet of vehicles to be hit a certain EPA gas mileage standard. That that goes away. That means something 2.7 billion, something like that in in tax 2.8 billion in revenue that Tesla got from selling credits in 2024, that goes away down to probably 25% of that. It's huge. Just that's a big mover for their bottom line, right? That goes away. It's a big problem in terms of you're looking at Tesla from a profitability point of view. You're trading it, are you trading fundamentals? I don't know. But that is a big problem, yeah. Yeah, sorry. So regulatory credits versus tax credits, my bad. That is important to distinguish. Yeah. So last week, we heard some of the investors of Tesla talking about autonomous being a much more realistic way of valuing Tesla going forward, not just next year, couple years, maybe five, 10 years down the road. I think Elon Musk said, I think they're going to be fully autonomous by 2030. Of course, he's pushing out the pulling out the goal posts for in terms of time, he said it was going to be 2025 a few years back. But my my thinking here is that investors should not, maybe they should not be more concerned with what's happening with Tesla, the motor company, and rather some of these other features, some of these other offerings that Tesla's going to be offering over the years. Not just autonomous, but also robotics and so forth, in these much more profitable areas. Maybe that's what investors are looking at right now and not hitting the stock as hard as they should be. Yeah, Dorsheimer kind of flicks at that the end saying, we want more data points on on robotaxi tests in Austin and things like that to to to, you know, ease our concerns over the actual Tesla business. I think there's two points there you mentioned, but the auto mode auto core auto business is not as valuable as, let's say, AI embodied AI robotaxi stuff. But where is that cheaper EV? That's the big question we've been, it's nowhere. They gave up on that. But also the robotaxi, yes, there's some hiccups down there in Texas right now with certain cars, you know, maybe violating traffic laws down there. But can they ramp it up? Can they actually succeed at it? I think it's still an open question. Yeah. Yeah, I've been hearing about it for a year now. Yeah. And what I mean, what have we been seeing in options activity in Tesla? Obviously, it's a very heavily traded stock. Right. Yeah. It's a it's a it's a stock that options traders love to love to trade on the upside and the downside. We're seeing a lot of last week saw a lot of put options being being bought all the way out to August and September, and which includes the July earnings report, which is coming out, I think, in a week, week and a half. 23rd, yeah. 23rd. So I I think there's a lot of potential for making some big money either up or down. Maybe both, up and down the market because the options market is really juiced up for a big move for for for Tesla. I think I want to say it's about 12-13% move, which is extraordinarily high historically for for Tesla right after earnings. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
