Tesla Stock Tumbles Amid Escalating Tariff Tensions
- Jasmine Sim
- Mar 9
- 3 min read
Tesla (TSLA) experienced a 5.2% plunge on Monday, giving it the title of the worst performing stock on both the ‘Magnificent Seven’ and the S&P 500. Catalyzed by President Trump’s historical tariffs on the US’ closest trading partners, fear was ignited in the hearts of investors about supply chain disruptions and rising costs as a result of retaliatory tariffs and the prospect of tariff wars.
Tech Struggles and Rising Tariffs
Tesla was not alone in their struggles- Apple (AAPL) declined 3.2%, making it the weakest performer on the Dow Jones Industrial Average (DJIA) and semiconductor manufacturer Nvidia (NVDA) dropping 2.8% over concerns about the AI market’s saturation.
Trump’s executive order enforces a massive 25% tariff on all Canadian and Mexican imports (with the exception of 10% of Canadian oil and a 1 month delay following the US-Mexico border agreement with Mexican President Claudia Sheinbaum). On top of this, a 10% tariff was enforced against Chinese-made goods. These recent tariffs further intensify concerns about input cost inflation and the long-term effects it has on corporate margins, especially for industries with complex and multi-national supply chains, like the automotive sector.
Tesla’s Vulnerability to Trump’s Tariffs
Tesla is particularly vulnerable to these changes because of their renowned complex globalized supply chain. With a significant amount of their car’s components coming from Canada and Mexico, the tariffs imposed will have a direct effect on their costs and therefore their gross margins. This hinders Musk’s firm from continuing to maintain a competitive pricing strategy, a highly important factor when considering the EV industry’s ever-growing competition.
Furthermore, Tesla’s status as a highly capital-intensive industry makes operating leverage crucial to its success. Rising input costs as a result of these tariffs can apply a strong weight on their free cash flow and profitability, threatening their position as market leaders.
How Musk’s Relationship is Impacting Tesla’s Performance
Tesla CEO's strong relationship with President Trump, acting as a senior advisor to the President, is becoming an ever-increasing liability to Tesla. In response to Trump's tariffs, Canadian officials are beginning to consider targeted measures against the firm, with former Canadian finance minister Chrystia Freeland going as far as to propose a 100% tariff on Tesla vehicles.
Further commercial backlash against Elon Musk has also taken place, with Ontario Premier Doug Ford terminating a government contract with Musk's Starlink service. If implemented, such retaliatory measures can severely impact Tesla's standing in North America and can prove to be detrimental to their North American revenue stream. Further risks of similar actions by other US trading partners could add even more layers of regulatory uncertainty for the EV giant, warding investors away from the firm.
Further Market Implications
Trump’s new strong tariffs are causing escalating trade tensions and anxiety over macroeconomic fallout. Tesla’s recent decline following their boom after Trump’s re-election reflects this, with their manufacturing model under threat. Tesla’s just-in-time (JIT) model for manufacturing relies heavily on the seamless flow of the supply chain, and any disruptions or increased costs could lead to this curated system falling apart.
Such disruptions could end up causing operational inefficiencies and pressure on Tesla’s EBITDA margins, creating even more anxiety over the EV manufacturer’s future.
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