Tesla (TSLA) and other electric vehicle (EV) makers were thrown into the spotlight after President Donald Trump signed resolutions aimed at dismantling California’s strict emissions standards. The move deals a blow to the EV industry’s regulatory advantages. Investors are now watching closely as this policy shift threatens to reshape the future of U.S. EV adoption and climate regulation.
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Following the announcement, Tesla shares dropped by almost 3% in pre-market trading on Friday. Meanwhile, Rivian Automotive (RIVN) also slipped over 2% and Lucid Motors (LCID) edged down 2.3%.
California Emissions Rollback Strikes a Blow to EV Makers
On Thursday, President Trump signed a resolution to strip California of its long-standing power to set its own air pollution rules, a right it has held since the 1960s. “We’re ending California’s electric vehicle mandate once and for all,” Trump declared.
California’s clean car rules require about two-thirds of all new vehicles sold by 2030 to be zero-emission. It also included a rule that would have banned the sale of new gas-powered cars in the state by 2035. As a result, this policy shift could significantly impact automakers, especially Tesla.
Notably, EVs currently make up around 20% of new car sales in California, compared to just 7% to 8% across the rest of the U.S.
What’s at Stake for Tesla?
California’s emission standards play a key role in Tesla’s ability to earn zero-emission vehicle (ZEV) credits. Since Tesla produces only EVs, it consistently surpasses regulatory targets. It then sells those excess credits to traditional automakers that fail to meet the standards—or expect to fall short. Over the past year, these credit sales have brought in nearly $3 billion for Tesla. This poses a potential headwind to Tesla’s non-vehicle income stream.
On the other hand, Tesla investors are increasingly betting on Tesla’s AI ambitions, seeing them as more valuable than its car sales. This month, Tesla is set to roll out its AI-powered robo-taxi service in Austin, Texas.
Is Tesla a Good Share to Buy?
According to TipRanks, TSLA stock has received a Hold consensus rating, with 14 Buys, 12 Holds, and nine Sells assigned in the last three months. The average Tesla stock price target is $285.97, suggesting a potential downside of over 10.4% from the current level.
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