When we previously reported that Elon Musk inserting himself into the world of ultra-far-right politics could end up tanking Tesla, plenty of Musk’s fellow far-right freaks insisted it was fake news, but there were also quite a few regular people who questioned whether or not it would even matter if Tesla sales dropped. After all, you could reasonably argue that new car sales aren’t a high priority for Elon right now since he has a federal government to plunder for the benefit of himself and his fellow billionaires, as well as plans to pivot to selling robotaxis and humanoid robots instead. Declining new car sales, however, threaten a cash cow that Tesla has depended on for years: carbon credits.
While a lot of people have heard of carbon credits and even understand generally how they work — Tesla gets credit for each EV it sells and can then sell those credits to other automakers that need to lower their on-paper emissions or risk paying large fines — far fewer realize just how much money Tesla makes off this arrangement. In 2024 alone, Tesla raked in $2.76 billion selling carbon credits to other companies. That was also a 54-percent increase over the previous year, Politico reports. If Tesla sells fewer cars, though, it doesn’t get as many credits to sell to other companies, potentially blowing a multi-billion-dollar hole in Tesla’s balance sheet.
Carbon credit nuance
If Tesla simply collected its credits through the year and then sold them to anyone willing to pay for them, declining sales wouldn’t be quite as big of a problem. The devil, however, lies in the details. Instead of, say, Honda buying a specific number of credits from Tesla or something more straightforward, the way it actually works is that automakers enter into a pool agreement, with the polluting automakers paying the automaker with the cleaner fleet to have their cars included in the larger fleet pool. For 2025, Ford, Stellantis and Toyota, as well as a few other automakers, joined a pool with Tesla. If Tesla doesn’t sell enough cars this year, the pool’s average emissions will be too high, triggering penalties from the European Union.
“If things go bad for Tesla and they don’t sell enough cars this year, they might not have enough credits for what they promised Stellantis and the others,” Peter Mock, managing director of the International Council on Clean Transportation, told Politico. “Tesla is under pressure.”
We’re also still in the first quarter, and an ICCT analysis already found that Tesla’s pool with Ford, Stellantis and Toyota isn’t meeting its 2025 emissions goals, and that’s despite European EV sales being up 34 percent in January. If Tesla doesn’t improve its sales enough to get the pool’s emissions average across the line, the fines will be steep. We’re talking hundreds of millions of dollars, and if the average is more than a couple of percentage points off, we could be talking penalties in the billions. And while you have to assume the largest automakers in the world will survive, they certainly won’t be happy about Tesla failing to uphold its end of the agreement. So while we don’t know the exact terms of the pool agreement, don’t be surprised if lawyers get involved and automakers decide to find other EV automakers to pool with in the future.
The signs do not look good
While the Tesla Takedown movement grows in the U.S., it still doesn’t appear that the bottom has dropped out yet like it has across the pond. In January, Tesla sales in Europe dropped 50 percent year-over-year. It was even worse in Germany, where his endorsement of the ultra-far-right Alternative for Germany party and speech at an AFD rally drew criticism from both German and Polish politicians. Tesla’s January sales in Germany dropped 60 percent. In France, it was even worse, with sales dropping 63 percent. And those are just January sales. February sales figures are just starting to come in, and if the trend holds, we’re likely looking at a decrease in line with January’s year-over-year performance.
We do, however, have official February sales numbers out of China, and they’re also officially Not Good. Reuters reports sales of Teslas made in China dropped 49 percent in February, making it the worst month since August 2022. There’s a good chance March sales won’t be quite as bad since the Model Y production line temporarily paused to upgrades for the facelift, and the Lunar New Year landed in February this year instead of January, but sales through the first two months of the year were still down 29 percent year-over-year. Meanwhile, Tesla’s Chinese competitor BYD jumped by 90 percent in February, so you never know. March could end up looking even worse for Tesla sales in China.
Tesla’s stock has also taken a beating. It closed yesterday at $272 and has dropped more than 27 percent year-to-date, essentially eliminating any gains that investors saw after the election. Share prices also peaked on December 17 at just under $480, meaning the stock has lost more than 40 percent of its value in less than three months. Tesla’s market cap is still north of $850 billion, compared to GM’s $45 billion and Ford’s $36 billion, so it isn’t going anywhere just yet, but that doesn’t mean Tesla is bulletproof. After all, if the market was completely rational, there’s no way Tesla would be worth as much as it is. Even if Musk had been kicked to the curb years ago, the sales and profits just don’t line up with the current valuation at all.
Elon’s Tesla Jenga tower
Since it’s only March, there’s technically still time for Tesla to pull a rabbit out of a hat and sell enough cars to get its pool’s emissions across the line. It doesn’t seem likely, especially as the Musk-Trump administration continues to further alienate the U.S. from the rest of the world. And while it will take time to see what the actual fallout looks like in the event that Tesla doesn’t sell enough cars to satisfy the terms of its pool agreement with other automakers, Musk is going to have to sell a lot more cars if he wants to avoid finding out. That also means that while anti-Tesla protests and social pressure may not bankrupt the automaker overnight, they’re also putting Musk in an incredibly tough position where he may not be able to stop the collapse once it starts, even with wealthy Republicans and Republicans who like weed Libertarians still buying incEl Caminos here in the U.S.
The market can stay irrational longer than anyone can stay solvent, and Tesla’s status as a meme stock is proof of that. At the same time, though, even wealthy investors don’t want to be caught with their pants down, and if Tesla’s sales declines continue, expect the stock price to continue to trend downward. A plummeting stock price doesn’t just impact Musk’s wealth, either. Interest alone on the Twitter deal reportedly costs Musk $1.5 billion a year, which means he desperately needs Tesla’s stock price to stay in meme territory. If it doesn’t, as Ludicrous: The Unvarnished Story of Tesla Motors author Ed Niedermeyer put it yesterday, “when one Jenga brick starts falling, it starts taking out others, and soon the entire wobbly tower is coming down around Elon’s ears.”
He’s starvin’
The good news is, while you would think Musk wouldn’t be concerned about dwindling car sales since he’s about to introduce a robotaxi and a robot that will turn Tesla into a $5 trillion company that makes money irrelevant, we’re already starting to see cracks form in the facade. Tesla just announced zero-percent financing on the Model 3, as well as a $0 down deal that comes with a 0.99-percent APR. That deal only applies to the Model 3, but nobody buys the Model S or Model X anymore anyway, and the Model Y refresh is still being rolled out. That said, they’re also offering discounts on pre-refresh Model Y. They’re clearly attempting to boost sales before the end of the quarter, which may possibly work, but it also means the anti-Tesla campaigns are working.
Maybe you can’t do much to stop Trump from pulling the U.S. out of NATO or the UN, prevent rampant inflation or mass unemployment, convince Democratic leaders to grow a backbone, save the Constitution while it hangs like a thread or even change one Trump voter’s mind, but you can buy a car that isn’t a Tesla. If you already own a Tesla, you can also trade it for a non-Tesla and encourage your friends and family to do the same. You won’t get what you paid for it, but unless something changes drastically, how confident are you that you’ll still want to be seen driving a Tesla a year from now? Musk is Tesla, and Tesla is Elon Musk. Even if you can separate the car from the fascist, is it really worth it? And possibly more importantly, how confident are you, really, that Tesla values won’t also continue to drop? Better to get out now and only lose $20,000 than wait and lose twice that. Even if you don’t own a Tesla, you can also take the protests to the Tesla dealerships themselves.
