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Investing.com -- William Blair downgraded Tesla (NASDAQ:TSLA) shares to Market Perform, warning that Donald Trump’s “Big, Beautiful Bill” (BBB) could deal a heavier blow to the company’s outlook than markets had anticipated.
While the removal of the $7,500 EV tax credit was expected, analyst Jed Dorsheimer said the surprise elimination of corporate average fuel economy (CAFE) fines could cause a more material impact on Tesla’s profitability.
“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.
Tesla earned $2.8 billion from selling regulatory credits in 2024, which William Blair said made up 16% of total gross profit.
The brokerage estimates that about 75% of those revenues are tied to CAFE standards, with that portion now effectively gone as OEMs will no longer face penalties for missing emissions targets.
Furthermore, the loss of tax credits could hit demand in the near term. “We expect this to cause an increase in unit volumes in the third quarter ahead of the sunset but to pressure fourth-quarter sales and margins on lower factory utilization and pricing concessions,” Dorsheimer said.
He also flagged investor concerns around Elon Musk’s political involvement. Over the July 4th weekend, the Tesla CEO launched the America Party, which analysts believe may be another distraction at a time when the business needs more focus.
“We would prefer this effort to be channeled towards the robotaxi rollout at this critical juncture,” Dorsheimer added.
On the valuation front, Tesla shares currently trade at 76 times William Blair’s reduced 2026 EBITDA estimate, compared with a peer group range of 20 to 25 times.
The firm sees the current multiple premium as vulnerable and expects the BBB to trigger a broader reset of Street estimates.
“After Street estimates reset, we will look for more datapoints on the robotaxi rollout to rebuild investor confidence,” the note continued.
Tesla shares fell more than 6% in premarket trading Monday as investors negatively reacted to Musk’s announcement of the America Party.