Tesla, an industry leader in electric vehicles, finds itself in a complex web of global trade uncertainties. Assembled primarily in its factories located in Fremont, California, and Austin, Texas, Tesla’s vehicles are built using components sourced from various international locations, including China, Canada, and Mexico. Notably, Mexico accounts for 15% of parts in the Model Y. As tensions rise over trade tariffs, Tesla spearheads an initiative to prevent any increase in the current 25% tariffs on Chinese graphite, a crucial component for the lithium-ion batteries that power its vehicles.
The potential imposition of new tariffs places Tesla in a precarious position. Canada’s Foreign Affairs Minister Mélanie Joly has indicated readiness to retaliate with a $155-billion tariff plan should President Trump proceed with new tariffs. This rapid response from Canadian officials underscores the significant risks faced by Tesla and other companies within the Musk industrial complex.
Meanwhile, Tesla’s year-to-date sales are facing challenges across Europe. The pressure is compounded by negative consumer perceptions of Elon Musk, as revealed in a survey by Stifel, which suggests a potential headwind to sales. Tesla’s stock has experienced volatility as well, initially rising over 50% following Trump’s election win but subsequently declining by 25% from its December peak.
“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
The impending 25% tariffs on steel and aluminum, set to take effect on April 2, pose additional challenges for Tesla and other American EV manufacturers. Given that Canada and Mexico are key suppliers of steel and aluminum to the U.S., these tariffs could have far-reaching implications. Marc Busch highlights the pressure these tariffs place on all electric vehicle makers due to their heavy reliance on these materials compared to conventional combustion-engine cars.
“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
Reliance on International Supply Chains
Tesla’s reliance on international sources for critical components is further evidenced by the importation of over 12,000 twenty-foot equivalent containers (TEUs) of batteries since 2023. The company’s efforts to mitigate risks through supply chain localization remain challenged by external trade policies.
“You could imagine that the genie is out of the bottle on that score,” – Busch
The scrutiny surrounding Elon Musk has intensified, potentially impacting Tesla’s market performance. Jacob Falkencrone notes that Musk’s influence, once seen as an asset, may now be causing more harm than good. Dan Levy attributes Tesla’s stock downturn to a combination of euphoria post-U.S. elections and technical factors, with fundamentals largely dismissed.
“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
Despite these challenges, some analysts remain optimistic about Tesla’s long-term prospects. Adam Jonas expresses confidence in Tesla’s competitive advantage in emerging industries, particularly embodied AI, suggesting that 2025 could be a pivotal year for investor appreciation.
“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
Tesla’s efforts to block increased tariffs on Chinese graphite reflect its strategic approach to safeguarding its supply chain and maintaining profitability. As a single Cybertruck requires more than 1,300 lithium-ion battery cell components, any disruption could have significant repercussions.
“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
Author’s Opinion
Tesla’s ability to weather these challenges will depend on its strategic maneuvering, both in terms of supply chain management and public perception. While tariffs and trade disputes pose significant risks, Tesla’s innovative edge and its continued push into emerging markets like embodied AI could help it maintain its leadership in the electric vehicle industry. However, it will need to address concerns surrounding Musk’s influence on consumer sentiment and adapt to the rapidly changing regulatory environment to secure its long-term success.
