The Trump administration seems to be in the process of waking up to the fact that a simplistic blanket approach to tariffs has consequences, including for US consumers and stocks. With a sea of red in US markets this week, the short trader is spoiled for short term opportunities.
One stand out example is Tesla [NASDAQ:TSLA] however. Beyond the impact of Trump tariffs, Tesla looks more exposed than many of its peers to the new administration, not least the close involvement of Elon Musk with government. Getting too close to a controversial administration is never a good thing for a CEO, especially if his core product is also exposed to his reputational risk.
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Tesla stock is now down 27% for the month and slid from a peak of $479 in December to trade now at $263. The stock is trading at where it was in November, but has scope to drop even further. Let's look at the three key factors which could take Tesla shares down past $200.
1. Trump tariffs
For starters the new tariffs regime does not look like it will be kind to US automakers. Global supply chains for the sector are simply too closely integrated for a radical tariffs regime to avoid harming the sector. In this respect Tesla is in the same boat as many of its competitors. The Trump administration seems to be waking up to this and dialling back on some of its tougher talk around tariffs as the US auto sector starts to feel the pain, but is it too little too late?
"Trump paused tariffs and the market sold off," says Neil Wilson, an analyst with TipRanks. "The old adage that the market hates uncertainty rings true. How the heck are you supposed to make investments or plan?"
While Tesla relies relatively heavily on domestically-produced parts for cars like its Model 3 Long Range AWD, an estimated 25% of its components come from outside the US. This includes suppliers from China, with which the US is now engaging in a tariffs war.
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