Donald Trump’s tariffs could help Tesla, by hurting its rivals more

As President Donald Trump puts new tariffs on goods from China and threatens a trade war with allies such as Mexico and Canada, one global company is likely to suffer less than most of its competitors: Tesla.

But the electric-vehicle maker, led by Elon Musk and which accounts for one-third of the billionaire’s wealth, is also vulnerable if relations with China worsen. That country is the company’s second-largest market after the United States and produces more cars there than anywhere else.

Tesla has built largely self-sufficient supply chains in the United States and China, a rarity in a world of interconnected trade. As a result, the tariffs imposed by the Trump administration on Chinese goods, and the continuing threat to put them on Mexican and Canadian products, might help Tesla by hurting its competitors more.

Although there is no evidence that Musk is shaping trade policies, the tariffs are one of several measures adopted by the Trump administration that may benefit Tesla at the expense of its rivals. On Wednesday, Trump paused 25% tariffs on most autos and parts made in Canada and Mexico, but the reprieve expires in a month, leaving automakers in the United States that depend on foreign supply chains in a state of uncertainty.

The administration is also trying to eliminate financial support for the construction of fast-charging stations for EVs, a move that could handicap companies seeking to compete with Tesla’s extensive network. And it is attempting to cut or eliminate loans and subsidies that competitors such as Ford Motor and Rivian are using to finance EV and battery factories.

Musk has said next to nothing about trade or the administration’s crusade to promote fossil fuels and impede sales of EVs, which could also hurt Tesla. And his support of Trump has inspired protests at Tesla dealerships and weighed on Tesla’s share price. But his position as a de facto member of Trump’s Cabinet gives him influence that far exceeds any other auto executive.

“Conflict of interest is putting it very mildly here,” said John Helveston, an assistant professor at George Washington University who teaches engineering management. Tesla did not respond to a request for comment. A White House official said its policies predated Musk’s support for Trump.

“President Trump consistently slammed Biden’s job-killing electric vehicle policies on the campaign trail since summer 2023 — more than a year before Elon Musk even endorsed President Trump — and he has consistently pressed companies to have their products be made in America since he first ran for president in 2015,” Kush Desai, a White House spokesperson, said in an email.

The trade war and other Trump policies also hold risks for Tesla when the company is already in crisis, with sales plummeting in China and Europe even as the overall market for EVs is surging.

Musk’s extensive investments in China leave him vulnerable as trade tensions between the Chinese government and the Trump administration rise.

“He could become a pawn in all of this,” said Lei Xing, an independent auto analyst based in Massachusetts who is focused on China.

Tesla is already struggling in Europe and China because of competition from Chinese EV makers and a dearth of new models. Anger over Musk’s political activities, including promotion of far-right parties, has also hurt demand in Germany, the United States and other markets. Musk’s personal wealth is tied up in Tesla stock, which has been on a steep decline.

When Tesla began mass-producing EVs at a factory in Fremont, California, in 2012, it designed a supply chain that was less dependent on imports than virtually all of its competitors. EVs were a new technology then, forcing Tesla to largely develop its own sources of batteries, motors and other components.

Tesla built a battery factory in Nevada in partnership with Panasonic of Japan, and it remains one of just a few car companies to mass-produce batteries in the United States.

When, in 2014, Musk began talking about building a factory in China, he received a warm welcome from government officials. Tesla opened a factory in Shanghai six years later under unusually favorable conditions. Beijing changed ownership rules so that the company could set up without a local partner, a first for a foreign automaker in China. The Chinese government also ensured low-interest loans, access to top leaders and even changes that Tesla had sought on emissions regulations.

But Musk kept supply chains for the Chinese and U.S. factories relatively separate, unlike other auto companies that depend heavily on imported parts.

“He set himself up nicely in the event that trade goes sideways and tariffs go higher,” said Michael Dunne, a longtime China automotive consultant. “And that serves him well today.”

Today, the cars made in Shanghai are sold in Europe and Southeast Asia and in the domestic Chinese market — but not in the United States.

The cars that Tesla sells in the United States are made at factories in Fremont and Austin, Texas. Tesla also produces charging equipment for its proprietary charging network — the nation’s largest — in Buffalo, New York. Tesla regularly tops an annual ranking by Cars.com, an online shopping site, of how much of a vehicle is made in America.

“Tesla is in a good position” to withstand tariffs, said Patrick Masterson, who oversees compilation of the data that goes into the Cars.com ranking. “Their domestic production is robust.”

Tesla is still vulnerable to tariffs on goods from China and Mexico because one-fourth of the components and materials in the car, measured by value, is imported, according to data compiled by the National Highway Traffic Safety Administration. But EVs made by Tesla’s competitors are much more vulnerable to tariffs.

General Motors’ Chevrolet Equinox SUV, for example, is made in Mexico. With a starting price of $34,000, the battery-powered vehicle is a threat to the Tesla Model Y, which starts at $45,000 before government incentives. The Trump administration’s 25% tariff will erase most of that advantage, assuming it stands.

The risk to Tesla in China is harder to gauge. So far, Chinese leaders appear to see Musk’s role in the Trump administration as a plus, viewing him as a potential point of contact. In January, when Han Zheng, China’s vice president flew to Washington to attend Trump’s inauguration, he met with Musk.

“U.S.-China policy often has operated through specific personal relationships,” said Ilaria Mazzocco, a senior fellow in Chinese business and economics at the Center for Strategic and International Studies, a Washington think tank. “There is hope in China that he could play a constructive role.”

But Musk has also lost some bargaining power in China.

When Chinese leaders greenlighted the Shanghai factory, Tesla was seen as a technology leader that would spur development of the EV industry. With sales plummeting in Europe and weakening in China, however, Tesla production in Shanghai fell 50% in February from a year earlier. Chinese automakers such as BYD and Xiaomi are introducing new models that rival Tesla in features such as autonomous driving.

Tesla’s prestige and leverage in China may be diminished as a result.

“Tesla can no longer control China,” said Jia Xinguang, an independent automotive analyst in Australia. “But China, by contrast, can control Tesla.”

Still, China would probably think twice before targeting Tesla and Musk because doing so could make it more difficult to attract foreign investment, said Wang Yanhang, a fellow at the Chongyang Institute for Financial Studies at Renmin University in Beijing who tracks trade issues. “China will not shoot itself in the foot,” he said. “It is the last option.”

So far, China has steered clear of autos when retaliating against the Trump administration’s tariffs on Chinese goods, instead raising duties on U.S. agricultural products such as chicken and wheat.

Tesla has quietly fought at least one potential tariff on Chinese materials that would have a direct impact on its competitiveness.

China is the main source of high-purity graphite, an essential material for batteries. In December, a group of companies that are trying to produce battery-grade graphite in the United States accused China of dumping and asked the U.S. International Trade Commission to impose punitive duties that could be more than 800%.

At a hearing on the issue in January, Tesla hired a prominent Washington law firm to argue its case, and four Tesla executives spoke, according to public documents. Tesla is “pushing back because they don’t see an alternative to the Chinese graphite,” said Iola Hughes, head of research at Rho Motion, which tracks the battery industry.

Last month, the trade agency said there was a “reasonable indication” that Chinese exports of graphite were harming U.S. producers. The agency has not issued a final decision. Trump’s rhetoric on trade has not included any mention of graphite.