Tesla. Tariffs, Price Wars, Chinese Competition and Protests.

Tesla. Tariffs, Price Wars, Chinese Competition and Protests.
 
Overview
·      Tesla’s earnings report today at 2:30 PM Pacific time could be terrible.
·      Institutional investors could sell in the extended hours trading period, which could cause a gap down overnight.
·      Tesla’s challenges will not disappear overnight.
·      Valuations for the company are quite high.
·      We’ve been warning that Tesla was in trouble for over a year. Be sure that you’re following me on Instagram & LinkedIn so that you get these warnings regularly. (ISPs are not great about delivering emails these days.)
·      Join us at our Stock Master Class on May 3, 2025, where you will learn how to evaluate equities yourself and where to find the information about what is likely to happen before the announcement is made. (Prerequisite: Spring Financial Freedom Retreat April 25-27, 2025.)
·      Email [email protected] if you’d like an updated Auto Stock Report Card.
 
Today, Tuesday, April 22, 2025, Tesla will release their 1Q 2025 quarter earnings report at 2:30 PM PT. However, we already know that the deliveries were very underwhelming and that the company’s profit margins have been under attack due to intense Chinese competition in the electric vehicle space. On the other hand, with Tesla down by more than half, is now a time to buy into Tesla‘s potential recovery and rally? How are other American automakers faring against the new tariffs?
 
Below are the topics will cover in this blog.
 
Tesla and Electric Vehicles 
Expensive Share Price?
Chinese Competition & Price Wars 
Tariffs
Protests 
ICE vehicles
Debt and Profitability
 
And here is more information on each topic.
 
Tesla and Electric Vehicles 
Tesla has been making the news this year because of the CEO’s high-profile role in government. However, the massive drop in share price over the last four months can also be attributed to other challenges faced by the company, many of which were a problem before the 2024 election results. Chinese competition was already weighing severely on margins. The price wars were forcing Tesla to lower prices in order to compete. As a result, revenue growth in the December 2024 quarter was only 2.15%, even though deliveries were higher than they’ve ever been. Tesla’s net income in 2024 was $7.13 billion compared to $15 billion in 2023.
 
The results that Tesla will announce today could be a massive disappointment for investors. Deliveries in 1Q 2025 were -13% lower year over year and a whopping -32% lower sequentially. The net income could drop to levels not seen since the second quarter of 2022. Such poor performance could easily spark massive selling in the extended hours trading and a gap down by tomorrow morning. (As a reminder, we’ve been warning of Tesla’s challenges for over a year.) 
 
Expensive Share Price?
With a market cap of over $762 billion, Tesla is worth more than General Motors, Ford Motor Company and Toyota Motors combined. The company was valued at over $1 trillion at the height of its popularity in January of this year. Even with the massive drop in share price, from a high of $488.54/share to today’s price of $240.34, the price earnings ratio is 112. That’s quite lofty for growth companies and far too speculative for companies that are experiencing a contraction in their profits and earnings.
 
You’ll see headlines about Tesla’s robotaxi as the savior of the stock. However, the company is not expected to put them on the road until 2027. Hoping that robotaxis will save the day becomes problematic when the global economy is embroiled in a Trade War, which could spark a recession. Learn more about Robotaxis in my Dec. 25, 2024, blog.
 
Many investors bought Tesla because they liked their cars. Once the CEO became involved in government, they began to sell their cars and stock. Institutional investors seek to profit from the popularity pulse. However, they are typically the first to pull the plug when challenges appear to be embedded and persistent. Many of Tesla’s challenges are unlikely to go away soon.
 
Chinese Competition & Price Wars 
The rapid growth of EV demand in China and the acceleration of the market to meet that demand has generated a massive price war. China is the fastest growing market for electric vehicles in the world by far, with 11 million of the 17.1 million EVs sold in 2024 (64.3%).
 

China’s BYD had the largest sales growth, with 52.66% revenue growth year over year in the 4th quarter. There are hundreds of Chinese electric vehicle startups. Many of them crash and burn. However, before they do, they bring down the retail prices of all the companies.
 
Tariffs
According to Telemetry, a Detroit-area automotive advisory firm, U.S. and Canadian auto sales could decline by 1.8 million vehicles in 2025 and remain stagnant over the next decade if the current tariffs stay in place. U.S. automotive executives have been lobbying the White House to get the tariffs abolished or at least paused for an extended period. 
 
Elon Musk has said the impact on Tesla will be “not trivial.” (We’ll hear more on tariffs today in the earnings call.) Analysts point out that, while all automakers will be affected by tariffs, Tesla will be less impacted because they produce and deliver locally. Tesla‘s vehicles are made in the United States, while GM imports 48% of its vehicles. Many of the vehicles sold in the US are imported from Canada or Mexico.
 
All cars are smart vehicles these days, relying upon microchips, most of which are sourced from Taiwan. Many auto parts are in the global supply chain and subject to tariffs. This will increase the cost for the automakers no matter where their cars are produced and delivered.
 
Protests 
Last year, the Tesla Model Y was the bestselling vehicle in the world. This year, there are Tesla Takedown protests. The brand has taken a hit due to Elon Musk‘s role in government. It’s still early in the game, and it’s impossible to know what the future holds in terms of investor and customer sentiment. Will Musk take more interest in government and give up his CEO position at Tesla? Will the reverse happen?
 
Tesla was so popular because it enjoyed First Mover Advantage and produced excellent vehicles. However, there are a lot of great choices for EVs these days.
 
ICE vehicles
According to Rho Motion, the leading electric vehicle research house, 17.1 million units of electric vehicles were sold in 2024, up 25% versus 2023. China led the charge with 11 million sold, up 40% over the 2023 sales. 2024 was the first time that Internal Combustion Engine (ICE) vehicles dropped below 80% market share in the U.S., at 79.8%. The forecast is that 25% of vehicles sold in the US in 2025 will be EVs.
 
Debt and Profitability
With profit margins getting squeezed by tariffs and intense competition, the automobile industry will be challenged in 2025. (The industry always suffers when the economy slows down. Remember that GM and Chrysler went bankrupt in 2009.) It’s important to note that many of the U.S. automakers are at the lowest rung of investment grade. Ford and General Motors both have elevated Debt to Equity ratios. Ford has the lowest credit rating of the big automakers at BBB- with a negative outlook. The company has slipped in and out of junk and investment grade many times over the past few decades.
 
Tesla has a lot of debt, as well. However, the market cap is so massive that the debt looks small by comparison. That will change if the share price plunges.
 
Bottom Line 
Tariffs are making automobiles more expensive to make at a time when the margins are already under attack from intense competition from the Chinese automakers. Forecasts are projecting a significant pull back in U.S. automobile sales. That is not the only problem weighing on Tesla at this time. All of the factors listed above are playing into why there has been a great deal of selling in the stock. While it’s human nature to want to buy & hope when tough times arrive, professional investors read the tea leaves of what the future is likely to hold to determine their strategy. The future looks rough and murky for the former darling of Wall Street and Main Street – Tesla.


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Natalie Pace, author of The Power of 8 Billion: It's Up to Us and other bestsellers. Photo by Brian McLernon.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is (2nd edition) are the most recent releases of these books. Follow her on Instagram. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.