Trump’s Tariffs Shake Tesla: A Deep Dive into Stock Performance and Future Prospects

President Donald Trump’s recent tariff decisions have taken a significant toll on electric vehicle giant Tesla. TSLA shares dropped 5% yesterday, making it one of the weakest performers in the S&P 500. The tariffs, set at 25% for goods from Mexico and Canada and 10% for imports from China, signal challenging times ahead for the company.

Tesla, which manufactures a large portion of its vehicles in China, faces serious repercussions from these tariffs. CFO Vaibhav Taneja expressed concerns during the last earnings call, stating, “Over the years, we’ve tried to localize our supply chain in every market, but we are still reliant on parts from across the world for all our businesses. The imposition of tariffs would affect our business and profitability.”

With tariffs now in place, vehicle prices are likely to increase, raising concerns about affordability and potentially decreasing demand. If Tesla absorbs the added costs, its slim margins could become even tighter. Clearly, these tariffs add pressure to an already strained situation.

Is This the Right Time to Invest in TSLA?

Investors are left pondering the implications of Tesla’s 5% slump. Is it time for buying or a sign of more trouble? To answer this question, we must analyze Tesla’s current results and future expectations.

Tesla’s Growth Goals Are Falling Short

Until early last year, Tesla projected a 50% annual growth rate in vehicle deliveries. However, due to sluggish EV adoption, tougher competition, and economic pressures, Tesla abandoned this ambitious target. For 2024, the company now anticipates only modest delivery growth. Despite year-end incentives designed to drive sales, Tesla fell short of its goals, experiencing a contraction in annual deliveries for the first time in its history.

Aggressive incentives and easy financing options have taken a toll on automotive profit margins. In the fourth quarter of 2024, Tesla’s automotive gross margin, including regulatory credits, dropped to 15.9%, down from 18.3% in the fourth quarter of 2023, and fell short of the expected 18.4%. The company also missed both earnings and revenue estimates during this period.

Tesla, Inc. Price, Consensus and EPS Surprise

Tesla, Inc. price-consensus-eps-surprise-chart | Tesla, Inc. Quote

Stay up-to-date with the quarterly releases: See ZacksEarnings Calendar.

Looking ahead, while Tesla hopes its vehicle business will return to growth in 2025, it seems to have downgraded its previous growth target of 20-30% for that year. The challenging market conditions, now compounded by tariffs, further complicate matters.

Moreover, demand for the Cybertruck seems to be waning, prompting the company to offer substantial discounts—up to $1,600 for new models and even $2,600 for demonstration vehicles in inventory. Tesla is expected to introduce an affordable EV in the first half of 2025 but provided little clarity on prices or specifications during their latest earnings call. As TSLA’s sales decline amid rising affordability concerns, timely execution on this new product will be critical.

Musk’s Tech Promises: A Mixed Bag

During the last earnings call, Elon Musk made bold claims about Tesla’s future, suggesting it could become the most valuable company in the world, surpassing the combined market value of Apple, Microsoft, NVIDIA, Alphabet, and Amazon. Such projections catch attention, but optimism raises eyebrows.

Musk attributes this confidence to advances in artificial intelligence, autonomous vehicles, and the Optimus robot. He even predicts that Optimus could generate $10 trillion in long-term revenue. However, historical context provides reason for skepticism, as Musk is known for ambitious promises, particularly during tough times when investor confidence needs bolstering. Investing based solely on these projections would be risky and speculative.

Tesla Faces a Critical 2025

Musk called 2025 a critical year for Tesla, suggesting it could be remembered as the most pivotal in the company’s history, even more so than the launches of the Model S, Model 3, or Model Y. This challenging year will require not only advancements in autonomous driving technology but also adherence to their robotaxi vision.

Tesla aims to roll out unsupervised Full Self-Driving (FSD) paid service in Austin this June. With the latest version already in operation at its Fremont factory, the ambitious plan could extend to Texas and California by the end of the year, pending regulatory approval. Success in these initiatives is essential for restoring investor faith.

If Tesla fails to deliver, regaining trust might prove challenging, and Musk’s audacious claims could appear even more far-fetched.

Bright Spots in Tesla’s Portfolio

On a positive note, Tesla’s energy generation and storage segment has thrived, boasting a remarkable triple-digit growth rate over the past three years. This division, highlighted by products like the Megapack, exhibits some of the highest profit margins within Tesla’s operations.

In the fourth quarter of 2024, Tesla deployed 11.0 GWh of energy storage products, marking a staggering 243% increase from the previous year. Overall deployments jumped from 14.7 GWh in 2023 to 31.4 GWh in 2024. Musk anticipates at least a 50% increase in deployments in 2025. This growth strategy positions Tesla favorably to benefit from the global shift towards renewable energy.

A Look at Tesla’s Valuation Issues

From a valuation standpoint, Tesla appears overpriced. It currently trades at a price/sales ratio of 10.77, exceeding its five-year average, and holds a Value Score of F.