The electric car giant is facing pressure from all sides—weaker demand, shifting government policies, and fierce competition from other automakers. To tackle these growing challenges, Tesla is trying out a new strategy: making the Model Y more affordable. And that’s no small move—after all, the Model Y is Tesla’s top-seller, accounting for nearly two-thirds of its global deliveries.
But the road ahead won’t be easy, especially with the headwinds expected ahead for Tesla with the upcoming discontinuation of federal tax credit and regulatory credits.
A Cheaper Model Y Is Coming – But With Some Trade-Offs
Tesla plans to start producing a lower-cost Model Y around August or September. While they haven’t officially revealed the full specs, it’s expected that some premium features will be left out to cut costs. We might see a lower-capacity battery (meaning less range), and features like active noise cancellation and the rear 8-inch touchscreen could be dropped.
The biggest headline though? Pricing. Tesla could price the new model around $30,000 or even lower. That’s a big step down from the current price of $37,490 for the long-range rear-wheel drive and $41,490 for the all-wheel drive version.
Right now, these prices include the $7,500 Federal Tax Credit in the U.S. But this benefit won’t last long—it’s scheduled to end on September 30, 2025. Once it’s gone, prices will shoot up. That’s where this new affordable Model Y will play a key role in keeping Tesla competitive.
Tesla’s Sales Are Slipping, and Credit Revenue Is Drying Up
Adding to the pressure, Tesla’s recent financial results haven’t been great. In the second quarter of 2025, profits dropped by 16%, falling to $1.17 billion, mainly because of a 13% slump in sales. Rising operating costs and lower profits per car are also making things harder.
Then there’s the issue of regulatory credits—also called carbon credits or zero-emission vehicle credits. Tesla has long made easy money by selling these to traditional carmakers who exceed their emissions limits. Since EVs produce no tailpipe emissions, Tesla earns surplus credits and sells them at a 100% profit.
But that stream is drying up fast. A new policy called the One Big Beautiful Bill Act (OBBBA) means that traditional automakers in the U.S. will no longer be fined for failing to meet CAFE standards. That removes the incentive to buy regulatory credits from Tesla.
In fact, Tesla’s regulatory credit income plummeted by 51% in Q2 2025 compared to the same quarter last year. That’s a drop of $441 million, including a $154 million decline just from the previous quarter.
Musk Isn’t Worried – And He’s Thinking Bigger
Even with all these setbacks, Elon Musk is staying positive.
He did admit that Tesla may have to go through a few tough quarters, and yes—Tesla’s stock fell by 7% right after. But Musk believes these problems are short-term. According to him, Tesla’s future lies in new technologies and innovations.
One of his biggest bets? Self-driving technology.
Tesla is already testing its robotaxi service in Texas, and plans to bring this tech to new vehicles like the Cybercab. Musk is also investing in humanoid robots, which he believes could become a major source of revenue in the future.
In his view, Tesla’s current troubles should start to ease by the second half of next year.
