Tesla regulatory credit revenue set to fall drastically as U.S. government nixes EV fuel factor multiplier

The White House administration has rescinded a rule that allowed automakers to inflate the real fuel economy of electric vehicles in their fleet with the so-called fuel content factor (FCF).

Tucked in under the Corporate Average Fuel Economy (CAFE) standard, said multiplier counted electric cars as contributing much more to the fleet's overall fuel economy than their actual technical specifications. The goal was to incentivize vehicle manufacturers into increasing the share of EVs in their portfolio.

As a result, they will now have to count an EV that previously brought them a 200 mpg CAFE rating, for instance, at its actual 30 mpg fuel efficiency equivalent to gas cars.

Tesla credit revenue impact

For legacy automakers, the move will dramatically lower the pressure to produce more electric instead of gas-powered cars. For Tesla, the removal of the FCF could mean a drastic drop in energy credit revenue in 2026, as its EVs will go back to their regular MPGe rating when calculating fleetwide efficiency.

The CAFE petroleum equivalency factor multiplier has been set at 1/0.15, or roughly 6.667, since the dawn of the EV era. This means that Tesla will now have to count the Model Y Long Range AWD efficiency at its EPA estimate of about 135 MPGe combined, rather than the close to 900 MPGe allowed under the FCF rule.

This overinflated number allowed Tesla to accumulate extra CAFE credits with each Model Y shipped to sell to other automakers looking for compliance. Its Corporate Average Fuel Economy count would fall significantly, leaving fewer excess energy credits to count on as income. For 2025, Tesla's regulatory credit revenue still accounted for over half of its $3.8 billion in net profit, as the company sold fewer vehicles year-on-year, so the FCF removal could seriously affect its 2026 financials.

The Biden administration had scheduled FCF for expiry in 2030, but it is now gone, effective immediately. President Trump's White House is also preparing a dramatic lowering of fuel efficiency standards, from the targeted 50.4 mpg in 2031 to just 34.5 miles per gallon, which could also lower the demand for regulatory credits from legacy automakers. 

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