Did Musk "wake up" too late? Trump's "Big Beautiful Plan" will severely impact Tesla's "carbon sales revenue"

Elon Musk donated over $250 million to help Trump get elected, but now he faces policies that could cost Tesla billions of dollars. Trump's "Big Beautiful Bill" will severely undermine the U.S. carbon emissions credit trading system, which is crucial for Tesla's profitability.

On July 4th, it was reported that Trump's "Big Beautiful Bill" will abolish key rules that allow electric vehicle manufacturers to sell billions of dollars in carbon emissions credits. The bill was finally passed by Congress on Thursday and will be sent to the president for signing. According to an article mentioned by Wall Street Insight, despite strong opposition from the Democrats, the Republicans managed to pass the bill before the July 4th deadline, and the White House stated that Trump would sign the bill at 5 PM on July 4th.

It is noteworthy that the bill sets the fines for Corporate Average Fuel Economy (CAFE) standards to zero, effectively removing the incentive for traditional automakers to purchase Tesla's carbon emissions credits. In the first quarter of this year, Tesla's carbon credit sales revenue reached $595 million, exceeding its net income of $409 million; without this revenue, Tesla would be in the red.

In addition to carbon credit revenue, Tesla's other businesses are also impacted by the "Big Beautiful Bill," including battery manufacturing, the Supercharger network, and solar roofs, all of which will likely lose significant federal support or tax breaks.

A former Tesla executive stated, "Musk has finally realized this, but it’s too late." Analysts point out that this escalating conflict places Republican lawmakers between the U.S. president and the world's richest man, exposing Musk's misjudgment of the impact of Trump's policies.

Carbon Credit Revenue Becomes Tesla's Profit Pillar

Carbon emissions credits trading has become an increasingly important source of revenue for Tesla. According to the company's financial report, Tesla is expected to generate $2.8 billion in revenue from global carbon credit sales in 2024, a significant increase from $1.8 billion in 2023, accounting for 39% of its $7.1 billion annual net profit. Since 2015, the company has accumulated over $11 billion in revenue from this business.

The U.S. has three parallel emissions credit systems, including the greenhouse gas emissions system operated by the EPA, California's system based on electric and hybrid vehicle sales, and the federal Corporate Average Fuel Economy standards. Trump's "Big Beautiful Bill" directly targets the CAFE system.

This system fines automakers that do not meet fuel efficiency standards while rewarding manufacturers of zero-emission vehicles with clean air credits, which can be sold to traditional automakers to offset fines. According to insiders, Tesla derives approximately three-quarters of its carbon credit revenue from the U.S. market.

Sources familiar with internal discussions at Tesla revealed that the new budget bill sets the fines for CAFE standards to zero, and Tesla is concerned that traditional automakers will significantly reduce their credit purchases as a result. Dan Becker, director of the Safe Climate Transportation Campaign at the Center for Biodiversity, stated:

" If there are no penalties for violations, there is no reason to purchase compliance credits. Although Tesla usually signs multi-year contracts with competitors, the impact will not be immediately apparent, but some contracts contain force majeure clauses and legislative change-related clauses that may become invalid due to Trump's legislation."

A Tesla insider stated: " The long-term market outlook has collapsed; Trump's actions are so swift and aggressive that the entire project may disappear."

Multiple Businesses Facing Policy Shock

In addition to carbon credit revenue, Tesla's other businesses will also be impacted by Trump's policy agenda. The company's battery manufacturing, approximately 2,600 U.S. Supercharger stations network, solar roofs, and commercial and residential battery storage package businesses will almost entirely lose significant federal support or tax breaks.

Particularly destructive is the $7,500 federal tax credit for specific electric vehicle purchases and leases, which will be eliminated by the end of September. Additionally, Trump's unpredictable tariff policies will disrupt its supply chain and reduce its access to critical materials. A former Tesla executive stated:

"This is not just a Cafe standards issue, but a combination of all factors: tariffs, the $7,500 consumer tax credit, manufacturing tax credits, charging credits, and residential solar credits."

Musk's Counterattack Limited, Awakening Too Late?

In the face of legislation threatening his business empire, Musk launched a fierce counterattack. Musk has repeatedly publicly criticized the legislation on social media as "abhorrent" and threatened to target lawmakers supporting the legislation with political donations. Trump countered, stating, "Without subsidies, Musk might have to shut down and return to his home in South Africa."

According to a previous article by Wall Street Journal, on July 1 local time, Trump blasted Musk on social media, claiming that the subsidies Musk received (for government electric vehicles) might be more than anyone in history, and without subsidies, he might have to shut down and "return to his home in South Africa."

Despite Musk having a large political donation fund, his counterattack ability seems limited. Many of Musk's allies in the business community also support the legislation that would extend personal income tax breaks. Investor Keith Rabois stated, "Preventing tax increases is absolutely crucial."

A former Tesla executive summarized: " This is bad policy that will have a devastating impact on Tesla's profitability. Musk has finally realized this, but it may be too late."