Congress has taken a step to erode California’s ability to regulate air emissions.
It's a small step, but the EPA and California's automotive regulations are important watches for Tesla investors. The current regulatory regime is a key part of Tesla's ability to make hundreds of millions of dollars from selling credit lines of zero-emission vehicles.
House members voted Thursday to invalidate their “Advanced Clean Car II” regulations, which the Environmental Protection Agency issued in January.
Essentially, the EPA exempts California from regulating its own air quality and seizing federal standards. California has been doing this since the late 1960s.
The exemption is related to California's new ACC II standard, which requires that by 2035, zero-emission vehicles and plug-in hybrids account for 100% of new car sales in the state.
Despite a lot of progress, it is a difficult task. In the first half of 2024, zero-emission vehicles accounted for about 25% of new vehicles sold in the state (zero-emission vehicle sales accounted for about 8% of new car sales in the U.S. in 2024.)
The rapid speed adopted by electric vehicles is one of the reasons why lobby groups’ automotive innovation alliances praises the decision. “Repealing California’s gasoline vehicle ban…is one of the most important policies to restore balance of vehicle emission regulations,” the league’s CEO John Bozzella said in a press release Thursday. “And ensuring customers remain free to choose the type of vehicle that works for them and their families.”
California and states following its rules account for about 30% of the total U.S. new car market.
House resolutions will require Senate approval and the president's signing before they can become law. It will then face legal challenges. The California Air Resources Commission did not immediately return a request for comment, but it will regulate air quality in the state for some time.
This is good news for Tesla. California regulations are an important part of its regulatory credit sales. Automakers selling zero-emission vehicles undersold can buy points from companies that own. Tesla always has too much credit because it only sells zero-emission vehicles. Barron got comments to Tesla.
It is worth mentioning that a strict secret is not easy to figure out. For example, automakers are not fined by California today, but they can reserve points for the next few years. Tesla also generates credit sales outside the United States.
The electric car maker has generated about $2.9 billion in credit sales over the past 12 months. Make some assumptions about Tesla's zero-emission credit to be sold globally, which could be worth between $2,000 and $3,000 per vehicle. As emission standards tighten, points seem to be becoming more valuable.
Tesla's credit sales have been around $4.6 billion over the past two years. During tough times, sales are a useful ballast. In the first quarter of 2025, Tesla's $595 million credit sales exceeded its $399 million net revenue. Tesla's auto business will lose money in the first quarter without getting a lender.
Obviously, profit is the reason why credit is important to Tesla investors. The $4.6 billion also represents cash that Cash Tesla can be used to invest in its AI ambitions, such as humanoid robots and self-driving cars.
By Monday's trading, Tesla shares have fallen 9% so far, while the S&P 500 has fallen 3%.
Write to Al root at allen.root@dowjones.com
