When Donald Trump returned to the White House in early 2025, few corporate leaders appeared closer to him than Elon Musk. The Tesla CEO had not only advised Trump but even shared public displays of camaraderie. Investors assumed that Musk’s closeness to the US President would translate into policy advantages for Tesla, the world’s most valuable electric-vehicle company.
In March 2025, Trump turned the South Lawn of the White House into a temporary Tesla showroom in a conspicuous favour to his then adviser Musk. Tesla delivered five of its vehicles to the White House and parked them on a driveway for Trump to personally inspect. As a show of support for Tesla, Trump also bought a Tesla Model S outside the White House in the presence of Musk. Months later, when Musk has distanced himself from Trump after a bitter fallout, Trump's policies are adversely affecting the profits of Tesla
Tesla’s latest quarterly earnings showed record revenues yet sharply lower profits, as the very policies of the Trump administration now weigh on the company’s performance. Instead of benefiting from political friendship, Tesla finds itself caught in a tightening web of tariff costs, shrinking incentives and evaporating regulatory credits.
The end of incentives and the demand squeeze
For more than a decade, federal tax credits have been the engine behind America’s electric-vehicle boom. Buyers of new EVs could claim up to $7,500 in credits, keeping Tesla’s Model 3 and Model Y among the country’s top-selling cars. That incentive, first passed in 2008 and extended under the Inflation Reduction Act of 2022, was crucial to maintaining steady consumer demand.
Trump’s tax-cut and spending law, signed in July 2025, abruptly ended that support by setting a September 30 expiration for the credit. In the weeks leading up to the deadline, Tesla enjoyed a rush of orders as consumers raced to secure the subsidy. But that was a one-time surge. With the incentive gone, sales momentum is already softening, and analysts expect electric-vehicle registrations to drop sharply through the end of the year.
Tesla’s third-quarter results tell the story in numbers. Revenue climbed 12 percent to $28.1 billion but profits fell 37 percent to $1.4 billion. The surge in revenue reflected the final burst of subsidised sales, while the profit decline reflected the higher costs of doing business in Trump’s America.
How tariffs and trade wars weigh on Tesla
Although Tesla builds all its U.S. vehicles in California and Texas, its supply chain stretches across continents. The company depends on imported components, including battery minerals and electronic systems sourced from Asia and South America. Trump’s aggressive trade policies, reviving tariffs on auto parts and raw materials, have driven up those costs substantially.
Tesla’s chief financial officer revealed that tariffs added more than $400 million in expenses during the third quarter alone. These import levies hit at every level of Tesla’s production, from nickel and lithium shipments to specialised semiconductors. Even as Tesla accelerates its efforts to localise production, the sudden increase in input costs has eroded margins and dented profitability.
Trump’s trade war has also disrupted global logistics. Tesla’s factories in Germany and China, which supply vehicles and components to various markets, are facing bottlenecks and higher transport costs due to retaliatory tariffs and supply restrictions. The administration’s insistence on reshoring production may appeal politically, but for a company like Tesla with an international manufacturing footprint, it has translated into an expensive logistical puzzle.
Fading regulatory credits
For years, Tesla relied on the sale of environmental and fuel-efficiency credits to other automakers as a lucrative source. Those credits, essentially payments from polluting rivals, often turned unprofitable quarters into profitable ones. But under Trump, the government has relaxed enforcement of fuel-efficiency penalties, allowing legacy automakers to pollute more without paying steep fines. That means fewer companies now need to buy Tesla’s credits and that once-reliable income stream is dwindling fast.
The fall in credit revenue, combined with rising costs and the end of the consumer tax break, has transformed Tesla’s financial profile. What investors once viewed as a politically sheltered company now looks increasingly exposed to Trump's policy swings. The public fallout between Musk and Trump over the summer, after Musk distanced himself from the administration, only intensified the perception that Tesla is now on the wrong side of the White House.
Tesla's future hinges on innovation
Tesla’s experience in 2025 is a sharp reminder that political proximity can be a double-edged sword. The early belief that Musk’s relationship with Trump would bring regulatory advantages has proved misplaced. Instead, the administration’s broader agenda, whcih includes cutting EV incentives, easing fuel-efficiency rules, and waging trade wars, has struck directly at Tesla’s core business model.
Musk, once eager to align himself with the president, now faces the consequences of that gamble. The company’s record revenues mask deepening vulnerabilities such as a fading policy cushion, rising production costs and an uncertain demand outlook. Going forward, investors will expect Tesla's success to stem from company’s ability to innovate, adapt and operate profitably in a far less forgiving atmosphere.
In March 2025, Trump turned the South Lawn of the White House into a temporary Tesla showroom in a conspicuous favour to his then adviser Musk. Tesla delivered five of its vehicles to the White House and parked them on a driveway for Trump to personally inspect. As a show of support for Tesla, Trump also bought a Tesla Model S outside the White House in the presence of Musk. Months later, when Musk has distanced himself from Trump after a bitter fallout, Trump's policies are adversely affecting the profits of Tesla
Tesla’s latest quarterly earnings showed record revenues yet sharply lower profits, as the very policies of the Trump administration now weigh on the company’s performance. Instead of benefiting from political friendship, Tesla finds itself caught in a tightening web of tariff costs, shrinking incentives and evaporating regulatory credits.
The end of incentives and the demand squeeze
For more than a decade, federal tax credits have been the engine behind America’s electric-vehicle boom. Buyers of new EVs could claim up to $7,500 in credits, keeping Tesla’s Model 3 and Model Y among the country’s top-selling cars. That incentive, first passed in 2008 and extended under the Inflation Reduction Act of 2022, was crucial to maintaining steady consumer demand.
Trump’s tax-cut and spending law, signed in July 2025, abruptly ended that support by setting a September 30 expiration for the credit. In the weeks leading up to the deadline, Tesla enjoyed a rush of orders as consumers raced to secure the subsidy. But that was a one-time surge. With the incentive gone, sales momentum is already softening, and analysts expect electric-vehicle registrations to drop sharply through the end of the year.
Tesla’s third-quarter results tell the story in numbers. Revenue climbed 12 percent to $28.1 billion but profits fell 37 percent to $1.4 billion. The surge in revenue reflected the final burst of subsidised sales, while the profit decline reflected the higher costs of doing business in Trump’s America.
How tariffs and trade wars weigh on Tesla
Although Tesla builds all its U.S. vehicles in California and Texas, its supply chain stretches across continents. The company depends on imported components, including battery minerals and electronic systems sourced from Asia and South America. Trump’s aggressive trade policies, reviving tariffs on auto parts and raw materials, have driven up those costs substantially.
Tesla’s chief financial officer revealed that tariffs added more than $400 million in expenses during the third quarter alone. These import levies hit at every level of Tesla’s production, from nickel and lithium shipments to specialised semiconductors. Even as Tesla accelerates its efforts to localise production, the sudden increase in input costs has eroded margins and dented profitability.
Trump’s trade war has also disrupted global logistics. Tesla’s factories in Germany and China, which supply vehicles and components to various markets, are facing bottlenecks and higher transport costs due to retaliatory tariffs and supply restrictions. The administration’s insistence on reshoring production may appeal politically, but for a company like Tesla with an international manufacturing footprint, it has translated into an expensive logistical puzzle.
Fading regulatory credits
For years, Tesla relied on the sale of environmental and fuel-efficiency credits to other automakers as a lucrative source. Those credits, essentially payments from polluting rivals, often turned unprofitable quarters into profitable ones. But under Trump, the government has relaxed enforcement of fuel-efficiency penalties, allowing legacy automakers to pollute more without paying steep fines. That means fewer companies now need to buy Tesla’s credits and that once-reliable income stream is dwindling fast.
The fall in credit revenue, combined with rising costs and the end of the consumer tax break, has transformed Tesla’s financial profile. What investors once viewed as a politically sheltered company now looks increasingly exposed to Trump's policy swings. The public fallout between Musk and Trump over the summer, after Musk distanced himself from the administration, only intensified the perception that Tesla is now on the wrong side of the White House.
Tesla's future hinges on innovation
Tesla’s experience in 2025 is a sharp reminder that political proximity can be a double-edged sword. The early belief that Musk’s relationship with Trump would bring regulatory advantages has proved misplaced. Instead, the administration’s broader agenda, whcih includes cutting EV incentives, easing fuel-efficiency rules, and waging trade wars, has struck directly at Tesla’s core business model.
Musk, once eager to align himself with the president, now faces the consequences of that gamble. The company’s record revenues mask deepening vulnerabilities such as a fading policy cushion, rising production costs and an uncertain demand outlook. Going forward, investors will expect Tesla's success to stem from company’s ability to innovate, adapt and operate profitably in a far less forgiving atmosphere.
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