This State Implemented a Tax That Impacts Only Tesla — 3 Tips for Stockholders

When you think of how Tesla makes its money, electric vehicles (EVs) and solar batteries probably come to mind before tax credits. But that’s one of Tesla’s biggest income streams.

When Washington State rolled out zero-emission vehicle (ZEV) credits, they might not have foreseen just how much electric vehicle leader Tesla would profit, nor that there would come a time when it could tap that income to generate state tax income.

What does this mean for Tesla stockholders who’ve already experienced recent volatility in their Tesla stock?

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Zero-Emission Vehicle (ZEV) Credits and Tesla

When you think of how Tesla makes its money, electric vehicles and solar technology might come to mind first — but one of its most profitable income streams has quietly been the sale of zero-emission vehicle (ZEV) credits. Now, that stream is facing its first major tax hit, and it could have ripple effects for Tesla’s future earnings.

Washington State recently passed a new law taxing the sale and banking of ZEV credits — revenues that made up an estimated 43% of Tesla’s net income in 2024. For current or potential Tesla investors, this raises important questions about stock volatility, future profit streams and what to expect going forward.

Here’s what Tesla shareholders need to know and three tips to adjust your portfolio or strategy.

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What This New Tax on ZEV Credits Means for Tesla

The ZEV credits program allows manufacturers to sell surplus ZEV credits to other automakers who aren’t as quick to get EVs in production. As such, Tesla has earned an estimated $10.7 billion over the past decade from the credits. In 2024 alone, these sales accounted for approximately 43% of Tesla’s net income.

When Washington State rolled out the ZEV credits, they might not have foreseen just how much electric vehicle leader Tesla would profit, nor that there would come a time when it could tap that income to generate state tax income.

Washington’s House Bill 2077 imposes a 2% tax on the sale of ZEV credits and a 10% tax on banked credits for the 2024 model year onward. The goal of the legislation is to level the playing field on Tesla’s outsized profits from the ZEV program and to promote a more equitable transition to electric vehicles.

Washington state’s recently enacted ZEV tax will generate as much as $77.9 million in its first year — most of it directly out of Tesla’s coffers. Though at least 30% of these funds will go toward Washington’s EV incentive program, Tesla shareholders are not happy.

An NBC News affiliate reported that Tesla sent a representative to a session of Washington lawmakers to “put the bill down” but for the foreseeable future it remains in effect.

What should Tesla investors do?

Expect Volatility

The most immediate impact on Tesla for stockholders to consider is that the new tax could reduce Tesla’s profit margins from ZEV credit sales alone, which has been a sizable revenue stream for the company.

Thus, if you hold Tesla stock, you may expect to see short-term dips or increased price volatility. This will have the most impact on people who are heavily invested in Tesla in a way that you might be trying to access soon, such as a retirement portfolio or college fund.

Get Diversified

Anytime a single stock is experiencing volatility it’s a good idea to make sure you’re well diversified. Investors should monitor Tesla’s own activities to diversify its revenue sources beyond ZEV credits.

Pay Attention To Policy Changes

A tax on Tesla’s ZEV credit revenues isn’t the only thing Tesla is concerned about — if other states follow Washington’s lead and adopt similar measures, that means Tesla will have less of a share in the ZEV credit market. If the company is counting on this as an income stream, it leaves questions about how they’ll make that loss up. This can impact share price.

Ultimately, while you shouldn’t overly worry about the impact on Tesla’s share prices, it’s a good idea to stay abreast of Tesla’s financial strategies and be ready to adapt to this changing landscape.

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This article originally appeared on GOBankingRates.com: This State Implemented a Tax That Impacts Only Tesla — 3 Tips for Stockholders