Tesla could face massive new obstacle as Senate considers controversial new bill: 'Taking away a key element of Tesla's profitability'

Tesla is facing a new potential hurdle, as Senate Republicans have been considering removing an incredibly valuable source of income for the electric vehicle company. 

What's happening?

According to Forbes, Senate Republicans are considering removing penalties from the Corporate Average Fuel Economy, or CAFE, standards. These standards of fuel efficiency require car companies to produce a certain number of fuel-efficient vehicles and receive credits when they do. If they fail to meet production standards on fuel efficiency, they can be subject to strict financial penalties. 

For companies like Tesla, which only produces EVs, these standards are easily passed, and they load up on credits for every vehicle they produce. For companies like Ford, General Motors, and others who still produce combustion engine cars, it's more difficult. So Tesla can sell their credits to other companies to help keep them in compliance with CAFE regulations and avoid costly penalties. 

Why are these regulations important for Tesla and others?

For Tesla, these credits represent an opportunity for pure profit. In fact, according to Forbes, the company made $2.67 billion off the credits in 2024 alone. Gutting those regulations would remove a massive, valuable revenue source for Tesla, at a time when it has struggled to generate revenue consistently. 

"A key element of Tesla's profitability has been its ability to generate credits because it makes zero emissions, and sell those credits to more polluting car companies like GM and Ford and Stellantis — primarily gas-guzzlers that don't really want to make clean cars," Dan Becker, director of the Safe Climate Transport Campaign at the Center for Biological Diversity, said.

"By taking away these credits, they're taking away a key element of Tesla's profitability," he added.

But beyond Tesla, removing these penalties from CAFE would essentially remove any teeth from the environmental regulations. There would be no threat to companies that fail to meet the required quotas of efficient vehicles. 

"It also would essentially turn the CAFE standards into nothing more than a reporting requirement with no consequences for automakers who fail to improve the efficiency of the vehicles they sell," Chris Harto, a senior policy analyst at Consumer Reports, said.

What's being done about these regulations?

The Senate is still deliberating what to do about CAFE regulations; Republicans on the Commerce, Science, and Technology Committee said that removing the penalties could reduce the price of vehicles in the United States, although they did not provide any figures or explain how, and it's unclear if the committee has considered the cost of health care and environmental effects from the resulting pollution should there be fewer EVs replacing gas cars, which are also generally more expensive to maintain and operate. 

If you care about these environmental regulations (which have been in place since 1975), contact your state senators to push to keep the penalties for non-compliance in place. 

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