This NEW Major BLOW to Tesla Changes Everything.

Time for yet another update on Tesla.

Take a look at this. This is a whole lot

of text. Don't worry, we're going to

break it down and make sense of all of

this. But basically, Tesla has some

serious work to do because not only is

Elon Musk now thinking about launching

his own political party, which obviously

isn't going to get enough mainstream

votes to be large enough as a Democratic

or Republican party, but that's actually

not his intention. He's astute enough to

realize that. What is Tesla facing in

the next 6 months that maybe kind of

flew under the radar in this big

beautiful bill? Well, it has to do with

the elimination of the zero emission

vehicle credits. So, under the

Congressional Review Act in on May 22nd,

the federal government limited states

from imposing their own emission

standards. On top of that, the monetary

penalty for producing too many gas

combustion vehicles versus electric

vehicles is getting set to zero upon the

signing of the big beautiful bill. Now,

that's a whole lot of talk there and a

lot of confusion that's going to go

around that unless we break that down

even more. So, let's put it this way. On

page 159 of the big beautiful bill,

corporate average fuel economy penalties

are being reduced to 0. And they're

being reduced to 0 as soon as the act is

signed. So, two big things just

happened. Number one, Congress said

states can't do their own regulations on

emissions, like requiring electric

vehicles or incentivizing uh zero

emission vehicles through some form of

credit program. The federal government

is also removing the fines for not

producing a high enough percentage of

electric vehicles, which typically

companies like Ford and GM would end up

having to pay fines unless they bought

excess zero emission credits from

another company like Tesla. Right here

at the top, you could see automotive

regulatory credits. Tesla's automotive

regular credits have bounced between

$442 million in Q1 of last year to $890

million in Q2, 739 million Q3, 692

million in Q4, and 595 million in Q1.

Now, Q1 2025 was particularly tough for

Tesla because it was a quarter we only

delivered 336,000 vehicles. That's

compared to the 384,000 vehicles that we

just delivered in Q2. And when we come

down to look at Tesla's actual operating

margin, they only brought in $399

million of operating margin. And since

automotive credits are basically free

money for Tesla with essentially no

margin cost, Tesla collected over $590

million of zero expense money. In other

words, if it weren't for these credits,

Tesla would have had negative operating

earnings in Q1. Now, that may not matter

because there's so much hope on electric

vehicles becoming the autonomous

vehicles of the future. That's exactly

what Barclays writes as well that any

kind of negative volume concerns are

being overshadowed by the autonomous

vehicle narrative, which is great for

Tesla, but it does create some potential

for a V-shaped collapse in earnings per

share. Now, why that matters? Well, if

we have a V-shaped collapse, in other

words, a collapse and then a recovery,

which I would expect because you'd get

growth off of a low number, once these

ZEV credits go away, Tesla's earnings

per share are likely to fall

substantially, potentially briefly into

a negative period and then recover from

there. But during that process, Tesla's

PE ratio is going to look even more

sky-high than the 186 PE ratio it has

now on the forward 12-month. and their

PEG ratio is going to look even more

high relative to the or even higher

relative to the 4x PEG ratio that they

have now which is also probably two

times what it should be. So that says

that said it's likely that come the you

know the third quarter is probably going

to be our first full quarter without

these zero emission vehicle credits

since the bill is being signed on July

4th and the third quarter just began.

Happy Independence Day. Happy July uh

you know Q3. By the way, we got a big

house hack update coming out soon, by

the way. But within give us about two

weeks. We just got to get the board to

approve some of these announcements that

we're making uh before we actually make

them and and they're pretty huge. So,

pretty exciting. But anyway, um Q3, so

happy Q3. Q3 will probably be the first

full quarter without the ZEV credits.

The CRA review was May 22nd, so that

was, you know, a month and a half ago.

But the ZEVE credit penalty going to

zero effectively making those ZEV

credits near worthless probably won't be

seen fully until Q3 this quarter. So,

you know, we'll get those numbers in

October of of this year. That's going to

suck. But Q3 is going to be buffered by

the fact that in Q3 we have the pull

forward of the ex like these expiring

tax credits, the $7,500 vehicle tax

credit. So, even though Q3 is going to

suck with ZEV credits, we're going to

pull forward demand for cars. people who

want Teslas and want that $7,500 credit

or 4,000 for a used car. That expires

September 30th, which is the end of Q3.

That means Q4 is going to be the first

full quarter where you have no ZEV

credits and you're following a pull

forward quarter. That sucks. So Q4 is

going to suck. But we don't actually get

that data until January of 2026, which

means absent some form of explosive

success on Optimus or Robo Taxi or an

introduced cheaper Model 2 or Model Q or

whatever you want to call it. I think

Janu like markets are going to start

pricing in some pain between now and

January of 2026. That said, it could be

a big buying opportunity because Tesla's

going to have to go through this credit

removal band, like removing that sort of

bandage or crutch, which Elon's always

expected that eventually they would go

through. So, I don't think there's

really a Tesla investor who's like, "Oh

no, we're going to lose our free

government money." It's just more going

to be like this period of time that you

kind of have to get through. And again,

I don't think we're going to have

optimist success, like huge Optimus

success within, you know, this year

here. But any kind of expansion of robo

taxi would be great or the introduction

of a model 2. Now, personally, and I've

been saying this for a while, but I kind

of think we should be going to getting

as many ADAS vehicles on the road as

possible. And that's actually a method

that BYD uses right now. They give away

their ADAS software, their self-driving

software for free. And Mexico is now

outpourcing outpacing Chinese imports

relative to US imports of vehicles

according to CNBC here despite the fact

that we have a a USMCA agreement a trade

agreement with Mexico which is crazy and

sort of doubles down on this idea that

we'd probably all be driving Chinese

vehicles if it were possible. That said,

I have to say some of the BYD

self-driving footage is really, really

impressive. Here's an example where a

car passes it on the left and the car

nicely slows and stops in the middle of

the intersection, which is remarkable. I

mean, Teslas will do this as well. I'm

just I'm more just trying to point out

like this this has already caught up in

some regards. This seems to be a vlogger

who's posting this video. There were a

lot of like edited and sponsored videos

that I didn't want to post. By the way,

I love that they have this permanent

digital mirror right here. I have the

Cybert truck. The mirror is totally

worthless. And even though yes, I could

get the rear view mirror on the center

console, you have to remember like that

takes effort to pull it up and set it

up. And sometimes when I'm in the middle

of driving, I just want to see the

traffic behind me. Like if traffic in

front of me is slamming on the brakes

and I'm driving, you know, I like to be

able to look behind me before I slam on

the brakes. Even sometimes with

autopilot, of course, I could use the

side mirrors to do that, but it doesn't

help me if there's like a motorcycle

right in between, right? So, I do think

this is really cool, but it doesn't

surprise me that Elon doesn't have a

digital mirror like this because

margins, baby. That said, you could

clearly see this car is going to change

lanes here by the indicator to the

right. So, changes lanes. The fact that

it doesn't get anywhere close to this

fence, pretty impressive. Uh, and then

moves over and does signal to move over

again. This is pretty impressive for a

BYD vehicle here. Now, they obviously

sped this up a little bit. Uh, you got

some crazy intersection that just

occurred there. You've got lane changes.

I mean, some of the footage that we were

just scrolling through on our live

stream was very impressive that we saw

with BYD. Uh, and BYD, mind you, also

introduces LAR based uh, technology on

some of their newer models. They

launched their LAR technology not at the

start of their operations of ADAS, which

they give away for free, but actually in

24, just in August, and they introduced

this vehicle at just $24,000,

which is pretty remarkable. And it

explains a lot of this expansion you're

seeing of BYD globally, whether it's

Brazil, whether it's Mexico, whether

it's Europe, or obviously China, uh,

where chi Tesla is, you know, we finally

got back to growth, but we're still

losing share. So, it's kind of

impressive. Uh, and and I think this BYD

approach is really smart. I wish that

Tesla would take the approach of just

throw the ads in for free and and get

more miles, get more training, get more

technology, incentivize people to buy

the car, get those vehicle deliveries up

up. Uh that would be absolutely amazing

in my opinion. But then again, just my

opinion. So my hope is that in addition

to getting, you know, more of an ADAS

expansion for Tesla, we also get some

kind of actual Model 2. Everybody keeps

talking about this line that Tesla puts

in their earnings calls, and I cover

this obviously in detail about, oh,

we're going to launch more affordable

vehicles in 2025.

I believe, I hope I'm wrong, but I

believe all they're talking about are

more affordable Cybert trucks, more

affordable Model 3s, and more affordable

Model Y's. I think Elon has a really big

stubbornness against changing the lines,

the manufacturing lines to introducing a

new model. Uh, and and it's probably

because he kind of got burned on the

Cybertruck. I love the Cybertruck. I'm

not here to poop on the Cybertruck, but

let's just face it, sales are not good

for the Cybertruck. Elon Musk is also

very pissed obviously about Donald

Trump. Uh, but in this Donald Trump

piece and the Wall Street Journal where,

you know, they say things like Elon

saying, you know, what good is Doge

saving $160 billion when the debt

ceiling is increased by $5 trillion. In

that same piece, the Wall Street Journal

quotes a BBC interview with one of Elon

Musk's ex-wives.

And that interview talks about how Elon

is actually a very emotional person. Uh

what they say is the following. They say

he feels with incredible purity the

emotion that he is feeling at the time.

Whatever the emotion is, he feels things

very deeply. I've heard it said that

he's cold and emotionless. And that

could not be further from the truth.

He's the most emotional person I know. I

think also that emotion can make him

very stubborn against the Model 2.

Remember, Tesla's board of directors

wanted a Model 2. Elon shut it down. I

don't know if that will ever change. I

hope it does because I think it'll be a

catalyst that you kind of need when

things get a little tougher in the

second half of the year. That said, it's

also worth paying attention to this.

Elon Musk is not talking about taking

over an entire political uh party uh

like the Republican party or the

Democratic party. Instead, he's talking

about being laser focused on just two or

three Senate seats for 8 to 10 House

districts. This makes sense. It would

give them the power to sort of be like

uh the Joe Mansion Kirstston Cinema and

take control of whether policy is able

to pass on a margin or not. Basically

force more bipartisanship. Will he be

able to bankroll enough of those

districts to pull that off and actually

get like in the middle people? I don't

know. But we'll see. We will see. Uh so,

you know, I'm optimistic and I'm

hopeful, but I also recognize there are

definitely headwinds coming for Tesla

and uh probably also just headwinds

coming with just tariff policy in

general. And I think it's one of the

reasons why we've been doing such fun so

much fundamental analysis on companies

frankly like Symbotic which you know

we've started talking about Symbotic uh

here just this year and we've been

talking about how this company is has a

real potential to just keep exploding. I

think its valuation is a little high

right now on the robotics front uh but

the momentum has taken over at this

point and volumes are skyrocketing for

this company. So I think it's going to

be another one to pay attention to. Uh

that said that's my take on what's going

on with Tesla. Why not advertise these

things that you told us here? I feel

like nobody else knows about this. We'll

we'll try a little advertising and see

how it goes. Congratulations, man. You

have done so much. People love you.

People look up to you. Kevin Pra there,

financial analyst and YouTuber. Meet

Kevin. Always great to get your take.