Tesla’s stock nosedives after Musk warns of ‘rough quarters’ ahead and $7,500 tax credit axed

Tesla’s stock nosedived on Thursday, erasing more than $17 billion from Elon Musk’s personal fortune in just a few hours. The staggering drop followed dire warnings from Musk about tough times ahead for the electric vehicle giant, as federal tax credits on EVs approach their expiry.

Shares of Tesla tumbled over 9% during early trading, falling to just under $302—a sharp decline triggered by a bleak second-quarter earnings report. Tesla reported its steepest quarterly revenue drop in more than a decade, including nearly $600 million in lost revenue from automotive regulatory credits.

The market’s reaction was swift and brutal. Musk, who owns about 12% of Tesla, saw the value of his stake shrink from roughly $136.3 billion to $123.7 billion—a $12.6 billion hit. On top of that, the value of his 9% bonus equity (valued at a 50% rate by Forbes) plunged by another $5 billion.

The fallout stems largely from President Donald Trump’s new policy bill, which eliminates the longstanding $7,500 tax credit for consumers buying or leasing electric vehicles. That credit, set to disappear after 30 September, has been a major driver of EV sales in the U.S. Its removal could reshape the market—and Tesla’s profits—with immediate effect.

During Tesla’s earnings call, Musk admitted the company “probably could have a few rough quarters” ahead due to the policy shift. Yet he also insisted that Tesla’s long-term economics would remain strong, predicting: “Certainly by the end of next year, I think I would be surprised if Tesla’s economics are not very compelling.”

Still, the immediate outlook appears grim. Analysts are already warning that the tax credit rollback could severely dent demand. Piper Sandler’s Alex Potter noted Tesla benefited from about $3.5 billion in “free money” in 2024 thanks to those credits. While Potter remains cautiously optimistic, suggesting only a “modest reduction” in revenue over the next two years, others are less convinced.

Dan Ives from Wedbush Securities called the removal of tax credits a “headwind” not only for Tesla but across the EV sector. “This cash cow will become less of the story,” he warned.

Tesla’s woes don’t stop at tax credits. The company’s share price has fallen more than 12% this year, despite a modest recovery in recent months. Some of that volatility has been linked to Musk’s continued political entanglements. Though he stepped down as a special government employee in Trump’s administration, his vocal involvement in policy debates has drawn scrutiny.

William Blair analysts recently downgraded Tesla stock, citing investor frustration with what they labelled Musk’s “distractions.” The timing of Tesla’s slump, so soon after Trump signed the so-called “One Big Beautiful Bill,” couldn’t be worse for the tech billionaire.

Ironically, Musk had previously called for an end to all credits—including those supporting clean energy. But he’s since backtracked, arguing in late 2024 that cuts to EV subsidies would be “incredibly destructive” for the U.S.

For now, Musk is left watching billions vanish from his net worth as Tesla battles mounting economic and political headwinds. Whether the company can weather these turbulent quarters remains to be seen—but Wall Street’s faith is clearly being tested.