Tesla takes a hit on profits and tariffs, but Musk’s back in the driver’s seat
Tesla has a problem.
It’s not just one of revenue decline or profit slump, though both were glaringly present in its Q1 earnings report. It’s the existential pressure that comes from having dominated a market only to face increasing competition, geopolitical volatility, and internal leadership shifts.
The electric vehicle (EV) giant reported a 71% drop in profits for Q1, alongside a 9% revenue decline year-over-year.
A $595 million increase from the sale of regulatory credits—a move that helped buoy Tesla’s bottom line—was a brief relief, but it does little to mask the reality that tariff policies and a slowing global economy have deeply impacted Tesla’s sales pipeline.
This isn’t just about electric cars anymore. It’s about Tesla’s entire business model in a world where tariffs, trade wars, and uncertain market dynamics leave no company immune.
Elon Musk, after much speculation, has announced he will be spending more time on Tesla and less on the Department of Government Efficiency (DOGE).
Tesla’s disappointing financials were unsurprising. The company’s automotive division saw a 20% drop in revenue, largely attributed to declining sales and rising production costs, further compounded by the US-China trade tariffs.
A major part of Tesla’s supply chain still depends on imported materials—meaning the company is directly exposed to escalating tariff rates that significantly erode margins.
Despite Musk’s optimism about the long-term benefits of a weaker dollar—which generally makes US-made products cheaper for global buyers—the volatility in trade policies and tariff barriers has created a level of uncertainty Tesla has not experienced before.
The US tariffs—on both Chinese imports and other trading partners—remain a real challenge.
While Tesla has done better than many of its US competitors due to its localised supply chains, the company is still subject to the ripple effects of foreign exchange fluctuations and global trade restrictions.
As Tesla works to offset these effects, it faces an increasingly competitive EV market, particularly from BYD in China and established European rivals.
While Tesla has largely avoided the worst of tariff-related losses, it’s not entirely immune. Raw materials, such as lithium and rare earth metals, have also seen price hikes, which are inevitably passed on to customers.
Musk’s robotaxi announcement has caused waves in the tech world. Tesla’s vision to roll out autonomous vehicles—starting with a pilot in Austin, Texas in mid-2025—is bold, to say the least.
But it’s also fraught with regulatory, technical challenges, and a significant lack of market readiness for a full-scale deployment.
The NHTSA is already probing Tesla’s autopilot features for safety concerns, raising questions about the company’s timeline.
Yet, despite these risks, Musk remains bullish, asserting that robotaxis will dominate Tesla’s future growth, along with the much-anticipated affordable Model Y.
The goal of having millions of autonomous Teslas on the road by 2026 is an audacious one, but whether Tesla can overcome regulatory hurdles and consumer hesitation is still up for debate.
At the same time, affordable EV models are Tesla’s next big ticket. With competition heating up globally, Tesla has been under pressure to introduce lower-cost vehicles to attract a broader base of consumers.
While Musk asserts that affordability will not compromise quality, the pricing strategy is still unclear, and the market demand for these vehicles remains uncertain, particularly as inflationary pressures continue to mount.
The more immediate financial and leadership concerns now lie with Musk’s refocused efforts.
After a period of heavy involvement in political advisory roles, Musk’s pivot back to Tesla full-time comes as no surprise to investors.
As the company’s largest shareholder, his leadership—and perhaps more importantly, his vision for the future—will be key in guiding Tesla through its financial struggles.
There’s no question that Musk’s presence at Tesla is invaluable for the company’s visionary direction.
However, for CFOs and finance leaders closely watching Tesla’s stock performance and financial health, the CEO’s return to operational duties is more than just a PR move.
It’s about rebuilding investor confidence after a series of stumbles in production targets, earnings misses, and regulatory concerns.