Is Tesla's Stock at Risk Without the EV Tax Credit?

Key Points

• Tesla’s revenue declined for the second consecutive quarter, according to its July 23 Q2 earnings report.

• Its shares were down 16% in the first week of September 2025, the worst performance among megacap stocks.

• The federal EV tax credit is set to expire on Sept. 30.

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The looming expiration date of federal electric vehicle (EV) tax credits has shaken up the EV market, and Tesla (NASDAQ: TSLA), the leading American EV manufacturer, may be the most impacted. Its shares have dropped 45% in 2025, reaching a calendar-year low of $214 in April.

And even though share prices bounced back in recent days/weeks/months, they are still down for the year, with Tesla CEO Elon Musk isn't very optimistic about the short-term outlook.

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Tesla has another rough earnings report

In its July 23 Q2 earnings report, Tesla posted a 16% decline in quarterly sales for the second straight quarter. The automaker also saw year-over-year declines in both revenue and vehicle deliveries.

Musk stated back in July that the company could have a few "rough quarters," highlighting tariff-related cost increases and the expiration of the tax credit as contributing factors. The company plans to limit vehicle inventory for Q3, and is uncertain whether it will be able to guarantee delivery for orders placed after August.

Musk, who was an advisor to President Donald Trump until May, when he resigned, stated in April that he believes lower tariff rates are beneficial for "prosperity." While Tesla is a U.S. manufacturer, it imports various car parts from multiple foreign countries that are currently impacted by tariffs, including battery cells from China.

The end of the EV tax credit

First introduced in 2009, the federal EV tax credits were implemented as incentives for U.S. consumers to purchase electric vehicles. The current credit for a new EV purchase is $7,500, while used car purchases can receive $4,000.

However, now that Congress has passed President Trump's "big, beautiful bill," those credit incentives will expire on Sept. 30. Consumers who have their car delivered after Sept. 30 will still receive the credit, provided the purchase occurs before the deadline.

In 2024, the U.S. Department of the Treasury and IRS reported that the government spent more than $2 billion in federal tax credits for more than 300,000 electric vehicle purchases. There's a strong chance that consumers will capitalize on the expiring credits, causing EV sales to spike briefly in September and then drop.

A study published in the National Bureau of Economic Research in October 2024 predicts that if the credits are eliminated, EV sales in the U.S. will fall by nearly 30%.

Tesla's share price increased in August

The EV company's stock price climbed 9% in August, marking a second consecutive month of price increases. But it has a lot of catching up to do, as share prices are currently down by 16% in 2025 in the first week of September. It's been over eight months since Tesla stock reached an all-time high, peaking at $488 on Dec. 2, 2024.

Competitors such as Ford Motor Company and General Motors will also be impacted by the tax credit elimination, but have their gas vehicle production to fall back on. Ford's share price was up by 18% in 2025, as of early September, while GM's increased 17%.

Is Tesla stock a buy right now?

While Tesla stock has been trending upward in recent months, macroeconomic factors like ongoing tariff disputes and a presidential administration that is actively rolling back EV initiatives make the stock a potentially volatile investment.

Once investors understand how Tesla plans to manage production after tax credits expire, they'll be able to make a more informed decision about the stock's long-term value within their portfolio. And there's a strong chance the stock will bounce back once President Trump is out of office. But for now, investors should wait for the next earnings report before purchasing shares.

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The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.