Tariffs are turning industries upside down… and car makers are especially feeling the pain.
A 25% tariff on all imported automobiles is in effect. That could add as much as $12,000 to the cost of a vehicle.
Automakers will be forced to eat the additional cost, which cuts into profit margins… or raise car prices to offset the tariffs, which risks denting demand and sales.
GM estimates that tariffs will cause a $5 billion hit. Ford is not even providing a forecast due to the uncertainty.
But if there’s one company that stands to benefit from the chaos, it’s Tesla.
Tesla vehicles sold domestically are as American-made as you can get. Tesla assembles all vehicles sold in the U.S. at its Texas and California factories.
While Tesla’s foreign-sourced parts are still subject to tariffs, the company is in much better shape than any other automaker in the U.S.
But despite this advantage, Tesla is encountering troubles that could leave its stock price vulnerable…
Tesla Sales Not Spared
While Tesla might have an advantage on tariffs relative to other automakers in the U.S., the company is exposed elsewhere.
That’s because Tesla actually gets a little over half its revenue from outside the U.S.
In foreign markets, Tesla is becoming a target. It faces reciprocal tariffs against the U.S. as well as backlash from consumers who don’t particularly care for CEO Elon Musk.
Tesla’s sales in Europe logged a 49% drop in April compared to the same month last year. For the January through April period, sales are down 40%.
The company is also facing stiffer competition from Chinese manufacturers. Chinese electric vehicle maker BYD sold more vehicles in Europe than Tesla for the first time ever last month.
Tesla is also struggling inside China. Sales in China fell 6% in April and have fallen seven months in a row.
All told, the company’s most recent quarterly sales dropped 9% from a year ago and are projected to fall again next quarter.
Earnings per share is expected at $1.93 this year. That’s about half of what the company earned in 2022.
With monthly sales figures plunging in key foreign markets, it could get worse still.
That could leave the stock’s recent rally vulnerable.
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Tesla Getting Stretched
Tesla shares are taking investors on a roller coaster ride.
The stock rallied by 91% from the November election through mid-December. That took TSLA to an all-time high.
From there, the stock dropped by 54%. But positive momentum divergences at a key chart level tipped the most recent rally. Look at the chart below:
As Tesla tested price support at the $220 level (the shaded box), the Relative Strength Index (RSI) hinted at a rally to come.
The RSI measures underlying price momentum. It started making higher lows, as shown with the dashed line.
From there, TSLA jumped above the 50-day moving average (blue line) and has rallied by 60%.
But at a time when Tesla’s financial outlook is in question, there are signs the rally is getting stretched to the upside.
TSLA currently extends 29% above the 50-day moving average. That points to a potential mean-reverting move lower.
There are also negative developments with the RSI. Take another look at the chart:
As TSLA is rallying, the RSI is making a lower high (the dashed trendlines).
It’s a small negative momentum divergence. But it’s worth watching closely, as the RSI hovers near the overbought level at 70.
Tesla shares may have raced back toward record highs. But a challenging outlook and stretched chart levels mean that investors should be cautious…
Yet there could be trading opportunities if you know how to play it. I recently shared a new strategy we’re using on stocks like TSLA that you can watch here.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. I talked briefly about possible short opportunities in a recent episode of my new premarket trading podcast.
If you haven’t checked it out yet, I’d encourage you to tune in at 8:30 a.m. ET, Monday through Thursday. You can watch for free at tradingwithlarry.com.
And if you want to catch up on recent episodes, find them here at https://www.youtube.com/@opportunistictrader.
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