With President Donald Trump planning to escalate his trade war this week with new tariffs on Canada, Mexico and China, the outsized role that Elon Musk is playing as one of the president’s closest advisors and leader of the Department of Government Efficiency is jeopardizing Tesla and other companies in his diverse business empire.
The planned 25% tariffs on Canada and Mexico — America’s two biggest trading partners — were suspended for 30 days by the White House after both countries made concessions and the U.S. stock market nosedived. But the tariffs are now back, scheduled for implementation on Tuesday, according to Trump.
The rapid response from Canadian officials when Trump first threatened the tariffs illustrates the risks Tesla and the rest of the Musk industrial complex faces.
Justin Trudeau, Canada’s outgoing prime minister, announced 25% reciprocal tariffs on American goods, including Teslas and other U.S.-made electric vehicles. Ontario premier Doug Ford said that his provincial government would be “ripping up” its $68-million contract with Starlink, Musk’s satellite internet company and part of his rocket enterprise, SpaceX. Chrystia Freeland, a Liberal Party member running to replace Trudeau, proposed placing a 100% tariff on Teslas. Canada’s Foreign Affairs Minister Mélanie Joly told CTV News that the government stands ready to retaliate with its $155-billion tariff plan, should Trump proceed on Tuesday.
Earlier in February, Mexican President Claudia Sheinbaum said she was working on “tariff and non-tariff measures in defense of Mexico’s interests,” without specifying what U.S. goods would be targeted. This week Trump also doubled his 10% tariff on China, effective immediately, a move the U.S. government has said Mexico is willing to match as a way to ease tariffs against its own economy.
Trump is now also considering 25% tariffs on cars and other goods imported by European Union nations, set to launch on April 2. Trump had previously hinted at putting reciprocal levies on EU nations, which imported nearly $600 billion worth of goods to the U.S. last year. That news elicited a strong rebuke from European leaders, who had been secretly planning retaliatory measures since last summer in anticipation of just such action.
European analysts expect the auto industry to be hit hard, citing cross-border North America manufacturing operations and complex global supply chains involving Mexico. “The general story is that all [carmakers] are highly globalized and so it will affect them all,” Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, told CNBC over video call.
Given the unpredictability surrounding the tariffs, there’s no telling what will happen in the coming days, yet the warning lights are still flashing for Telsa, which has already seen its stock drop and sales tumble over the past two months. Analysts point not only to looming tariffs as the culprit but also growing animus among foreign consumers toward Musk and his increasingly far-right political persona.
In the meantime, publicly owned Tesla is the most vulnerable of Musk’s entities — also including SpaceX, X, xAI, Neuralink and The Boring Co., all privately owned — to other nations’ tit-for-tat tariffs. Indeed, in an earnings call at the end of January, Telsa CFO Vaibhav Taneja told analysts: “There’s a lot of uncertainty around tariffs. Over the years, we’ve tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses. Therefore, the imposition of tariffs, which is very likely, will have an impact on our business and profitability.”
Already, Trump’s across-the-globe 25% tariffs on steel and aluminum set for April 2, metals that are crucial to Tesla and other American EV manufacturers. Canada and Mexico are among the leading sources of U.S. steel imports, and Canada is the nation’s largest supplier of aluminum.
“All electric vehicle makers are going to feel the pressure from those [tariffs], because they use way more steel and aluminum than a conventional combustion-engine car,” said Marc Busch, professor of international business diplomacy at Georgetown University. “So I have no doubt that this will get [Musk’s] attention, and I can imagine that that would be an added political pressure benefit in terms of retaliatory strikes by the European Union, Canada and others.”
Tesla’s sold in the U.S. are assembled at its factories in Fremont, California, and Austin, Texas, but various components are sourced from China, Canada and Mexico, the latter providing 15% of parts in the Model Y. Telsa is leading an effort to block any increase in the current 25% tariffs on Chinese graphite, an essential component in the lithium-ion batteries. Trump is also looking into new tariffs on copper, another key metal in EV production.
The two states importing the most lithium-ion batteries from China are California and Texas, both key states for Tesla. Since 2023, Tesla has brought in over 12,000 twenty-foot equivalent containers (TEUs) of the batteries between the two states, according to Import Genius. That’s at least 100 million lithium batteries for Texas and California alone. A single Cybertruck has more than 1,300 lithium-ion battery cell components, according to published estimates.
What Wall Street analysts think about Tesla ‘buyers’ strike’
Telsa’s year-to-date sales have already been cratering throughout Europe. The plunge ranged from an 18.2% dip in the UK to a 75.4% meltdown in Spain. Sales in Germany, where Tesla operates a gigafactory, plummeted nearly 60%.
Besides increased competition in Europe for EVs from Volkswagen, BMW and BYD, Telsa appears to be suffering from the Musk’s coziness with Trump and increased meddling in other nation’s politics. For instance, ahead of Germany’s elections on Feb. 23, Musk had urged voters to back a candidate in the far-right party, the Alternative for Germany, known as the AfD. Musk has also declared his support for the anti-immigrant party in the UK and criticized Prime Minister Keir Starmer, leader of the Labour Party.
Jacob Falkencrone, global head of investment strategy at Denmark’s Saxo Bank, recently wrote that Tesla’s foreign sales declines were due in part to “growing scrutiny of CEO Elon Musk, whose influence — once an undeniable asset — may now be doing more harm than good.”
Tesla’s stock has had a volatile ride, Falkencrone wrote, rising over 50% following Trump’s election win, but then sinking 25% from its December peak as weak sales data from China and Europe rattled investors, making it the weakest stock in the so-called Magnificent Seven tech companies this year.
Another analysis, based on a survey by Stifel earlier this month, said that Tesla’s trailing four-week net favorability rating was nearing all-time lows. “We believe the negative downturn in consumers’ perception of Elon Musk is captured in our proprietary survey data out of our Stifel Think Tank Group and potentially results in a headwind to sales,” the report said.
On Feb. 26, in a note to clients, Barclays analyst Dan Levy said that he foresees further impediments to Tesla shares. “Our best explanation is that there is an unwind of the powerful run that (Tesla stock) had last fall post the U.S. elections, which reflected a combination of sharp euphoria and technical factors — with fundamentals largely dismissed,” Levy wrote. Although he doubts whether Tesla’s can boost profit margins in the first quarter of this year, Levy is holding out hope that the launch of its robotaxi service in June could be a spark.
One more headwind that Musk might encounter is reaction in China to the newly imposed 20% tariffs, which could trigger not only retaliatory tariffs that impact Tesla and SpaceX but also antitrust investigations. Chinese regulators are already looking into Google’s operations there, and X could get swept up in similar scrutiny.
Other countries hit with new tariffs are already employing that punitive strategy against Musk’s companies. X has been found in breach of Europe’s Digital Services Act, even as the social media platform faces other complaints related to the EU’s General Data Protection Regulation, as well as election interference.
“You could imagine that the genie is out of the bottle on that score,” Busch said about regulatory retributions, “and that in some capitals they’re considering doing exactly the same thing with respect to the services that are provided by Musk’s companies. And the last thing that he needs is intense regulatory scrutiny and potential fetters on his operations with respect to delivering services in those jurisdictions.”
Some on Wall Street are making the case that EVs will soon be the past for Tesla anyway. Morgan Stanley, in issuing an $800 share price bull case for Tesla this week, said the recent “buyers’ strike” hitting sales are “emblematic of a company in the transition from an automotive ‘pure play’ to a highly diversified
play on AI and robotics.”
“While the journey may be volatile and non-linear, we believe 2025 will be a year where investors will continue to appreciate and value these existing and nascent industries of embodied AI where we believe
Tesla has established a material competitive advantage,” wrote Morgan Stanley analyst Adam Jonas.
Within the U.S, regulatory regime, Musk has a lot to gain. In the U.S., 11 different U.S. agencies have more than 32 continuing investigations, pending complaints or enforcement actions into Musk’s six companies, according to a review by The New York Times. They include safety violations at SpaceX by the Federal Aviation Administration, a lawsuit against Musk by the Securities and Exchange Commission and hundreds of complaints about Tesla made to the Consumer Financial Protection Bureau, which is being gutted by the Trump administration and DOGE specifically.
Tesla could ultimately come out ahead with Musk wielding his unfettered authority to reshape federal agencies and departments to make investigations into his businesses disappear, while tariffs on foreign-made EVs imported could harm Telsa’s competitors and improve its market dominance in the U.S. Musk and his businesses have already received at least $38 billion in government contracts, loans, subsidies and tax credits, and if conflict-of-interest rules don’t get in the way, additional deals could be granted.
