William Blair downgraded Tesla (NASDAQ:TSLA) to Market Perform from Outperform, warning that a combination of policy changes and declining regulatory credits pose significant risks to both demand and profitability. The company’s shares fell over 7% intra-day today.

The analysts noted that while the removal of the $7,500 EV tax credit under the “Big Beautiful Bill” was anticipated and already a concern for Tesla’s demand outlook, the unexpected elimination of corporate average fuel economy (CAFE) fines creates an additional and more direct threat to Tesla’s bottom line. The firm estimates over $2 billion in annual profits tied to regulatory credit sales could now be at risk.

Unlike the tax credit, which affects consumer demand, the loss of regulatory credit revenue is expected to translate directly into lower profitability, forcing analysts across the Street to reset earnings models. William Blair believes these combined headwinds will weigh heavily on Tesla shares, prompting the downgrade to Market Perform as the stock’s risk/reward profile deteriorates.