Tesla's stock has taken a significant hit following a post-election rally, falling over 20% year-to-date and around 40% since reaching a peak in December. This decline highlights the growing challenges facing the electric vehicle giant amid escalating global trade tensions. The U.S. government's recent decision to suspend planned 25% tariffs on Canada and Mexico for 30 days, after concessions were made, offers some temporary relief. However, this move followed a sharp downturn in the U.S. stock market, underscoring the volatile environment for businesses like Tesla.
In a recent policy shift, President Trump doubled his 10% tariff on China, effective immediately. The U.S. government indicated that Mexico is willing to match this increase to mitigate the impact on its own economy. Tesla stands particularly vulnerable to these tit-for-tat tariffs due to its reliance on international supply chains. The company sources parts from around the globe for its various operations, making it susceptible to disruptions in trade.
Canada's Foreign Affairs Minister Mélanie Joly has stated readiness to retaliate with a $155-billion tariff plan if Trump proceeds with imposing tariffs. Furthermore, Canada's outgoing Prime Minister Justin Trudeau announced 25% reciprocal tariffs on American goods, including Teslas and other U.S.-made electric vehicles. These developments have had a noticeable impact on Tesla's foreign sales, which have been declining partly due to these global supply chain dependencies.
The company has reportedly imported over 12,000 twenty-foot equivalent containers (TEUs) of batteries between the two states since 2023, illustrating the scale of its operations and the potential impact of tariffs. Tesla's sales have already seen a downturn in Europe, with a significant drop in Germany, where it operates a gigafactory. Sales in Germany plummeted nearly 60%, reflecting the broader challenges Tesla faces in maintaining its market presence amidst trade uncertainties.
President Trump is now considering imposing 25% tariffs on cars and other goods imported by European Union nations, set to take effect on April 2. This prospect adds another layer of complexity for Tesla, which is already grappling with volatile stock performance. Tesla's CFO Vaibhav Taneja addressed these concerns during an analyst call, emphasizing the uncertainty surrounding tariffs.
"There's a lot of uncertainty around tariffs. Over the years, we've tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses. Therefore, the imposition of tariffs, which is very likely, will have an impact on our business and profitability." – Vaibhav Taneja, Tesla CFO
The intricate nature of Tesla's supply chain makes it especially susceptible to fluctuations in trade policies. A single Cybertruck, for instance, contains more than 1,300 lithium-ion battery cell components. This complexity underscores the potential challenges Tesla may face as tariffs reshape global trade dynamics.
Industry experts emphasize that all electric vehicle manufacturers will experience pressure from these tariffs due to their heavy reliance on materials like steel and aluminum.
"All electric vehicle makers are going to feel the pressure from those [tariffs], because they use way more steel and aluminum than a conventional combustion-engine car." – Marc Busch, professor of international business diplomacy at Georgetown University
Moreover, experts suggest that retaliatory measures by global powers could further complicate matters for Tesla and its CEO, Elon Musk.
"So I have no doubt that this will get [Musk's] attention, and I can imagine that that would be an added political pressure benefit in terms of retaliatory strikes by the European Union, Canada and others." – Marc Busch, professor of international business diplomacy at Georgetown University
The volatility in Tesla's stock performance reflects a broader investor sentiment. The stock rose over 50% following Trump's election win but has since dropped 25% from its December peak as weak sales data from China and Europe unsettled investors.
"Our best explanation is that there is an unwind of the powerful run that (Tesla stock) had last fall post the U.S. elections, which reflected a combination of sharp euphoria and technical factors — with fundamentals largely dismissed," – Dan Levy, Barclays analyst
In addition to these market dynamics, consumer perceptions of Elon Musk may also play a role in Tesla's current challenges.
"We believe the negative downturn in consumers' perception of Elon Musk is captured in our proprietary survey data out of our Stifel Think Tank Group and potentially results in a headwind to sales." – Stifel report
Despite these challenges, some analysts remain optimistic about Tesla's long-term prospects.
"While the journey may be volatile and non-linear, we believe 2025 will be a year where investors will continue to appreciate and value these existing and nascent industries of embodied AI where we believe Tesla has established a material competitive advantage," – Adam Jonas, Morgan Stanley analyst
Tesla's evolution from an automotive manufacturer to a diversified player in AI and robotics continues to intrigue market analysts.
"emblematic of a company in the transition from an automotive 'pure play' to a highly diversified play on AI and robotics." – Adam Jonas, Morgan Stanley analyst