Tesla Shares Drop 5% on Trump Tariffs, Decline in Vehicle Registrations in Europe
The electric car manufacturer on Monday suffered a sharp fall in stocks as the companies fell almost 5 percent to close at $383.68. This decline was after President Donald Trump announced new tariffs on imports from China, Mexico, and Canada, along with weakening vehicle registrations within its major European markets. Other megacap tech stocks such as Apple declined, but the declines witnessed with Tesla were much steeper.
Effects of Trump's Tariffs on Tesla
The latest move by President Donald Trump in imposing 10% tariffs on Chinese imports is putting further pressure on Tesla, which manufactures half of its vehicles in China. Although Tesla operates production facilities in the U.S., Berlin, and Shanghai, it remains vulnerable to changes in trade policies. The company's Chief Financial Officer, Vaibhav Taneja, recently warned investors that these tariffs could negatively impact Tesla's profitability.
Taneja explained, "Over the years, we have 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 have an impact on our business and profitability." This statement reflects the broader challenges Tesla faces in an increasingly protectionist trade environment.
Decline in Tesla Vehicle Registrations Across Europe
In another development, Tesla's stock dropped as major European markets reported falling vehicle registrations. In France, the largest European EV market, Tesla registrations crashed by 63% in January compared to last year, reports Plateforme Automobile (PFA). This marked a far deeper fall than electric vehicle sales in general and total car sales across the country.
Sweden and Norway are also reporting big declines, and Tesla vehicle sales fell 44% and 38%, respectively, in January. Reuters found these figures telling of weakening demand for Tesla in Europe, with local EV makers gaining ground there.
Tesla Pricing Strategy Adjustments
Among the problems, Tesla took measures to spur demand. At the weekend, the company cut lease prices on its base Model 3 sedan and the unpainted steel Cybertruck in the U.S. The decision appears to be directed at addressing slow sales and cleaning up excess stock.
An independent researcher, known online as "Troy Teslike," suggested that Tesla's Cybertruck sales may be significantly underwhelming. He projected that Tesla might sell only around 21,000 units of the Cybertruck in 2025. He also pointed out that Tesla ended 2024 with 10,600 unsold Cybertrucks due to an overproduction issue combined with lower-than-expected demand.
He wrote on social media platform X, "The order backlog is gone. Tesla's backlog dropped to zero on November 24, 2024, when its U.S. order page showed that customers could order and take delivery of a Cybertruck on the same day.
The political involvement of Tesla CEO Elon Musk has also become a talking point. Musk was one of Trump's biggest donors, contributing $290 million to Republican candidates and causes during the 2024 presidential campaign. Much of that money went toward the effort to reelect the former president.
Furthermore, recently, he has supported Germany's far-right Alternative for Germany (AfD) party. This political activity coupled with his controversial remarks went against the brand reputation of Tesla. According to consulting firm Brand Finance, the brand value of Tesla declined by 26% in 2024, which indicates a decrease in consumer sentiment and investor confidence.
Frequently Asked Questions
What caused the Tesla shares to decline by 5%?
The stock of Tesla declined due to several factors, including President Trump's newly imposed 10% tariffs on Chinese imports, a steep decline in Tesla vehicle registrations in key European markets, and concerns over slowing sales and excess inventory of the Cybertruck.
How do Trump's tariffs affect Tesla?
Since Tesla produces about half of its vehicles in China, the new tariffs will increase costs and affect supply chain operations. Although Tesla has factories in the U.S., Berlin, and Shanghai, it still relies on global parts sourcing, making it susceptible to trade restrictions.
Why are Tesla’s vehicle registrations declining in Europe?
Tesla registrations have drastically declined in France (63%), Sweden (44%), and Norway (38%) due to increasing competition, saturation of the market, and shift in consumer preference. European automobile manufacturers are giving more choices, which has diluted Tesla's hold.
What is Tesla doing to recover from falling sales?
Tesla has lowered the leasing prices for Model 3 sedan and Cybertruck in the United States. Analysts still predict that Tesla may fail to sell many Cybertrucks due to overproduction and low demand.
How is Elon Musk's political activism impacting Tesla?
Musk's monetary and public endorsements of Donald Trump and far-right political parties had resulted in brand value decline of Tesla. It has been increasingly alienating the consumers and the investors by stating controversial things on politics and even endorsing political leaders.
Tesla faces significant challenges ahead, including geopolitical risks, declining brand value, and increased market competition. While the company has taken steps to mitigate these issues, it remains to be seen how Tesla will navigate the evolving economic and political landscape.
