Tesla’s stock (TSLA) surged today after President Trump announced changes to his tariffs, which were put in place hours ago.
However, the move is irrational since Trump significantly increased tariffs on China, which will destroy Tesla’s energy business.
Trump’s “reciprocal tariffs” announced last week came into effect at midnight.
The President implemented a 10% base tariff on all imports and then added up to 49% “reciprocal tariffs” on countries. The term “reciprocal” is not accurate since he based the tariffs on the US’ trade deficit with each country rather than the actual tariffs they place on the US.
The announcement sent the stock markets crashing last week and experts were highly critical of Trump because countries can’t negotiate to remove tariffs that don’t exist.
Today, only hours after the tariffs were put in place, Trump announced that he is pausing the “reciprocal tariffs” for 90 days.
However, he is keeping the new 10% tariffs on all imports across the board, and he announced that he is increasing the previously announced 104% tariffs on China to 125%.
The move sent the stock markets back up.
Tesla also surges on the news
Tesla’s stock also surged on the news, by as much as 20% at the time of writing, but it’s not clear why.
The company wasn’t greatly affected by the “reciprocal tariffs” that were just paused, but the tariffs on China that were increased have a massive impact on Tesla.
As we previously reported, Tesla’s entire energy business, which is its only growing business, is based on importing cheap Chinese battery cells into the US, building them into battery packs (Megapacks and Powerwalls), and selling them around the world.
Now, those cells are going to cost 125% more, which will likely double the price of its stationary battery packs.
Tesla has also recently started production at a new Megafactory in Shanghai to produce the Megapack. The battery systems coming out of that plant are expected to be shipped to markets outside of the US and should enable Tesla to stay competitive outside the US.
However, the Chinese tariffs have just thrown a wrench into Tesla’s megafactory in Lathrop and its powerwall production in Nevada.
Furthermore, Tesla has also recently announced plans to build a second Megafactory in the US to build more Megapacks. It’s unclear if Tesla also planned to use Chinese battery cells for that plant.
Tesla uses battery cells from China for its stationary storage product because it’s the only country that produces low-cost LFP battery cells in high volumes.
Electrek’s Take
I say I’m not sure why Tesla also surged on this news, but it’s mainly because it’s a meme stock now. It doesn’t really trade on its actual earnings potential.
Also, Tesla shareholders appear to be clueless about what’s happening.
This trade war with China is terrible for Tesla. Any significant tariffs on Chinese imports will greatly increase the price of Powerwalls and Megapacks – crippling Tesla’s only growing business unit.
Also, if this trade war gets any worse, Tesla should expect Chinese buyers to reduce their interest in buying vehicles from American brands.
While I don’t think we are quite there yet, I think that if it keeps escalating, Tesla should even be worried about the status of Gigafactory Shanghai.
The only positive thing for Tesla in Trump’s tariff strategy, if you can call it a strategy, is that he is entirely incompetent and will likely fold.
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