Why Tesla may avoid the blow of Trump's auto tariffs

The Hill

02-04-2025

Elon Musk's focus on American-made products at Tesla could shield his company from the brunt of President Trump's new tariffs on foreign vehicles and automobile parts.
While foreign automakers and American consumers anticipate climbing car prices, the electric vehicle (EV) manufacturer — led by Musk — may be safe from Trump's 25 percent tariff because of its domestic production.
'Tesla made a business model choice that has served them well,' said Simon Ellis, who leads supply chain practices at IDC Manufacturing Insights. 'They can … argue more compellingly that their cars are really made in America.'
'And in the current climate, that probably helps them,' Ellis added.
Trump's 25 percent tariff is set to go into effect on April 2 as part of the president's broader trade war. He argued the tariffs will encourage foreign car manufacturers to move production into the U.S. and increase American jobs.
Tesla produces all of its North American vehicles in the U.S. at factories in California and Texas, potentially lessening the impact for Musk-led company, industry experts said.
'[Tesla] is well positioned because they have vertical integration,' said Stephanie Valdez Streaty, Cox Automotive's director of industry insights. 'They produce the vehicles they are building, the batteries. … They can have more control over that supply chain, which helps them out.'
The tariffs are meant to force automakers to move production to the U.S., which could be a lengthy and expensive process.
Trump told 'Meet The Press' in a Sunday interview he was fine with Americans paying higher prices for cars, so long as they were made in the U.S.
'I couldn't care less. I hope they raise their prices, because if they do, people are going to buy American-made cars. We have plenty,' Trump said.
Tesla has a head start to this transition, observers said, given the manufacturing process already takes place in the U.S.
'It going to take a while for some of these other manufacturers that don't have anything. It's going to take longer for them to retool the plants or shift production,' Valdez Streaty said. 'So that's another advantage.'
Tesla's EV competitors are poised to be especially hard hit by Trump's auto tariffs, Maxwell Shulman, a policy research analyst at Beacon Policy Advisors, told The Hill.
EVs already tend to be more expensive than their gasoline-powered alternatives and are reliant on battery and critical mineral supply chains that mostly run through China, Shulman noted.
'Any corresponding price increase makes them even less appealing to the average consumer,' Shulman said. 'And many companies are currently already losing money on every EV they make right now in the hopes that it might eventually be profitable.'
In a note to investors last week, Deutsche Bank analysts predicted Tesla would be 'best off' from the tariffs when compared to other major car manufacturers, including Ford, Honda, General Motors (GM), Nissan, Toyota and Stellantis.
Analysts predicted GM could be the most impacted given its presence in Mexico, while Nissan and Toyota could be 'materially impacted' due to imports made in Japan and Mexico.
Still, Tesla is not entirely immune, as some of its parts do not come from the United States.
Earlier this month, Tesla acknowledged in a letter to U.S. Trade Representative Jamieson Greer that some vehicle parts are 'difficult or impossible' to source in the U.S.
At least 20 percent to 25 percent of Tesla parts are imported from other countries, according to a document from the National Highway Traffic Safety Administration. Another 60 percent to 75 percent are produced in the U.S. and Canada.
Musk said last week Tesla is 'NOT unscathed' by the tariff impact, which is 'still significant' for the company.
Wedbush Securities analyst Dan Ives echoed this, stating the tariffs still present a 'headwind' for Tesla.
'Tesla is getting hit … less than other automakers when it comes to the tariffs, but I see no way that they wouldn't have to increase prices if the tariff stays in its current form,' Ives told The Hill.
Trump's tariff could add, on average, $4,711 to the cost of buying a vehicle, according to a report from prominent economist Arthur Laffer last week.
Trump has wielded tariffs aggressively in his second term in office, levying import taxes on America's largest trading partners.
After imposing 25 percent tariffs on all products imported from both Canada and Mexico, Trump announced a one-month delay on auto parts and other products covered by a North American trade agreement he signed in his first term.
The extension is set to expire on April 2, the same day that Trump plans to unveil sweeping reciprocal tariffs on countries with duties on U.S. goods, which the president has labeled 'Liberation Day.'
Tesla is also vulnerable to retaliation from other countries.
The company warned of this in its letter to Greer earlier this month, stating 'U.S. exporters are inherently exposed to disproportionate impacts when other countries respond to U.S. trade actions.'
Shulman noted Tesla doesn't have the same 'global footprint' as other auto manufacturers, meaning it could be hit worse when other countries respond to U.S. tariffs.
Musk's relationship with Trump could also make his company a particular target for retaliatory actions. Canada announced last week that it had barred Tesla from the country's rebate programs in response to Trump's tariffs.
Nonetheless, Tesla's limited exposure to the auto tariffs may be a bright spot for the company, which has struggled in recent months as Musk has taken on a controversial role in the Trump administration leading the Department of Government Efficiency (DOGE).
Tesla's stock has plummeted nearly 50 percent since late December, and the EV company has become a target for both peaceful protests and violent demonstrations, including vandalism, shootings and arson attacks.
Trump and his allies rallied around the struggling company in recent weeks, with the president vowing to buy one of Musk's cars and Commerce Secretary Howard Lutnick urging Americans to buy Tesla stock.
Some industry observers argued the lessened impact of Trump's tariffs on Tesla will still not be enough to make up for the challenges facing the company and its standing in the electric vehicle community.
'Tesla is going through a brand crisis tornado because of Musk's DOGE influence,' Ives said, adding, 'I think the brand crisis tornado is much more of an impact than the net benefit from the tariffs in the U.S.'
Ives described the moment as a 'tipping point' for Tesla as Musk attempts to run both DOGE and Tesla, along with his other companies, including SpaceX, the social platform X and artificial intelligence firm xAI.
While Tesla has long been a dominant player in the EV space, the brand's focus appears to be shifting more toward artificial intelligence (AI) and robotics. Besides the Cybertruck, Tesla has not released a new EV model in the U.S. since 2020, when it launched the Model Y crossover SUV.
'[During] the last couple earning calls, Elon Musk has definitely highlighted that they [Tesla] are an AI robotics company,' she said. 'They still sell cars, but in terms of a kind of priority is this robotaxi they've been talking about launching.'
Even so, some in the business world believe this could serve Tesla's advantage.
'I don't think of Tesla as a car company. I think of them as a technology company, I think of them as an AI play, I think of them as a robotaxi provider, an autonomous driving provider and I think of them as an innovative company,' Paul Marino, chief revenue officer at Themes ETFs, told The Hill.
'If you're an investor in Tesla at its valuation today, you're not really worried or investing in them based on their ability to sell cars only,' Marino said, adding later, 'They're light years ahead of the other auto manufacturers from a standpoint of how they produce, how they manufacture, and then how they're going to generate additional revenue.'