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A federal deadline got Kathy Horan into her first new car in more than a decade. She’s lived for years in the North Bay, north of San Francisco. With the federal tax credit on electric cars about to end, her hybrid went in as a trade-in on a fully electric one. She told CBS San Francisco what she said as soon as the cuts started: “Well, there is my timeframe.”
The credit took up to $7,500 off a new electric car. It was written into a 2022 law, and the tax bill signed in July 2025 ended it on September 30. California’s governor had already said the state wasn’t going to step in with a rebate of its own.
Plenty of buyers had the same idea. In the last days, Tesla’s website had a clock counting down to the order cutoff for the credit, NPR reported. Two days after the deadline, Tesla announced the most deliveries it had ever made in a quarter, and CNN put the jump down to Americans buying before the credit ran out. Tesla’s announcement had a second record in it, for the batteries it sells to homes and power companies.
Two businesses in one number
Tesla’s gross margin for the year of the rush came out almost exactly where it had been. Gross margin is the share of each sales dollar left after the cost of making what was sold, and Tesla’s annual report puts it at 18.0 percent in 2025, against 17.9 percent in 2024 and 18.2 percent in 2023. If all you had were those three numbers, and somebody asked whether that’s a good profit margin for a carmaker, you’d probably call it steady and move on.
Horan knew her deadline, and the law spelled out what the credit was worth. A company’s margin is an average of different businesses, plus some revenue that costs almost nothing to produce, and an average can sit still while its parts move hard in opposite directions. At Tesla they did.
Tesla reports two businesses. One sells and leases cars and runs the services around them, like charging, insurance and used cars. The other sells batteries for homes and power grids, plus solar. The car margin, which covers cars sold and leased plus one line that no car buyer pays for, fell every year, from 19.4 percent in 2023 to 17.8 in 2025. Energy went the other way, from 18.9 to 29.8, while its sales more than doubled. So the part earning more on each dollar was also getting bigger, and the average held.
Some of that energy margin came from the law behind the credit Horan was chasing. That law also rewards manufacturers with a tax credit for the batteries they make, and Tesla counts that one as a cut in its costs, so the credit lifts the margin without ever showing up as revenue. In energy it came to $115 million in 2023 and $1.12 billion in 2025. Take it out and the energy margin goes from 17.0 percent to 21.0 over those two years. Of the 10.9 points the energy margin gained, four were real improvement and the credit was the other 6.9.
Before I judge a margin, I split it by business when the company reports more than one, since a steady total can hide two trends going opposite ways. And when some of it isn’t the product itself, like credits counted as lower costs or revenue with no cost line of its own, I read the margin with them and without them. Tesla’s car margin has one of those: the regulatory credits it sells to other carmakers. With them out of sales and profit both, the cars earned 15.4 percent in 2024 and 15.4 in 2025. The reported margin came down because the credits brought in less than in 2024, and that’s the main reason Tesla gives.
Where this breaks
The split between cars and energy depends on how Tesla divides the costs the two share, like factories and overhead. Split them another way and both margins move. I use the split Tesla reports because it’s the only one on the record.
I can also only take out what a company tells me. Tesla gives the size of its manufacturing credit in a note to its accounts, away from the income statement itself. When a company doesn’t, the credit stays buried in its costs, and the margin looks like it all came from the business. The government’s help keeps changing, too. Tesla’s annual report says the July 2025 law cut back much of the 2022 package, though some of it survives under tighter rules.
The deadline Kathy Horan raced
Horan had the keys to her new car on Thursday, September 25, five days before the deadline. The help she raced for came from the federal government, with an end date she could see. Tesla’s car margin had some help too, from those regulatory credits. Governments in several places set rules on how clean a carmaker’s fleet has to be, and one that falls short can pay one that beats the rule for its spare credits. Tesla’s annual report says it sells the credits to other carmakers as its new cars are sold, and that they carry almost no added cost. And the same law that ended the EV tax credit did away with some of the penalties for breaking those rules, the report says.
Those credits brought in $1,993 million in 2025, a little more than the $1,790 million of 2023. The profit under them shrank. Tesla’s operating income, the profit left after the costs of running the company, like research and administration, fell from $8,891 million to $4,355 million over those two years as those costs grew. Close to half of the $4,355 million came from other carmakers.