TLDR
- Tesla (TSLA) stock is rising in premarket trading, potentially boosted by Trump’s changes to auto tariff policies
- Elon Musk announced he will spend less time at DOGE and more time leading Tesla starting in May
- Tesla’s Q1 deliveries fell to 337,000 from 387,000 year-over-year, with revenue down 9%
- The stock has gained for five consecutive days, up almost 20% since disappointing Q1 earnings
- Investors are looking forward to Tesla’s AI efforts, including driverless taxi service and robots
Tesla stock has been on a winning streak, rising in premarket trading Tuesday to $288.50, marking a 0.9% increase. This continues a five-day rally that has seen the stock climb almost 20% since the company reported its first-quarter earnings last week.
The rally comes despite Tesla’s disappointing Q1 results. The company reported an operating profit of just $399 million, down 65% from last year and well below Wall Street’s expected $900 million.
Revenue also took a hit, falling 9% year over year to just under $19 billion. This decline was primarily driven by a 21% drop in automobile sales, though the company did see growth in its energy generation and services segments.
Total vehicle deliveries in Q1 fell to around 337,000, compared to 387,000 in the same quarter last year. The slump in sales has put pressure on the company’s financials.
Tariff Changes Boost Outlook
One key factor driving Tuesday’s trading is expected changes to President Trump’s auto tariff policies. Trump is scheduled to announce modifications at a rally in Warren, Michigan, on Tuesday evening.
The anticipated changes would separate auto tariffs from other tariffs related to steel, aluminum, fentanyl, or “reciprocal” tariffs placed on other countries. While the 25% tariff on imported cars will remain, a credit worth 3.75% of a car’s value could help mitigate the 25% tariff on imported parts.
This is good news for Tesla, which doesn’t import cars to the U.S. but does face tariffs on imported parts. The credit could offset between two-thirds to all of the parts tariffs effect, based on Tesla’s domestic supply chain.
These tariff adjustments are expected to be positive for car shares across the board, potentially adding to Tesla’s recent momentum.
Musk’s Return to the Driver’s Seat
Another major catalyst for Tesla’s stock revival is CEO Elon Musk’s announcement that he will spend less time managing the Department of Government Efficiency (DOGE) and more time leading Tesla starting in May.
Musk’s divided attention has been a concern for investors. Besides his government role at DOGE, he also runs SpaceX, xAI, and The Boring Company, leading some shareholders to feel that Tesla was being neglected.
His time at DOGE has made him a polarizing figure for some of Tesla’s customer base, potentially hurting sales. His return to focusing more on Tesla has been welcomed by investors.
The market is forward-looking, and investors are now anticipating Musk’s renewed focus on Tesla’s growth initiatives.
Despite the recent challenges, operating expenses rose by 9% in Q1, with increased spending on research and development. This investment is presumably to support the development of Tesla’s robotaxi and autonomous driving platform.
Tesla plans to launch an AI-trained driverless taxi service in Austin, Texas, this June. It also aims to manufacture thousands of AI-trained robots by the end of the year.
Many investors view Tesla as an AI company rather than just an automaker. Its robotaxi and autonomous driving platforms could become huge revenue sources in coming years, according to bulls like Cathie Wood of Ark Invest.
Analysts forecast that revenue declines will continue in Q2, with a projected 6% drop, but expect growth to return in Q3.
Tesla’s current price-to-earnings ratio stands at around 140, with a forward P/E of 133, suggesting the stock is not cheap by traditional metrics. However, its price-to-sales ratio of 9 is below its five-year average of 13, which might attract value-oriented investors.
Wall Street expects Tesla’s earnings to roughly triple by 2028, according to FactSet, compared to just 33% growth for Apple over the same period.
The company earned $409 million in net income attributable to shareholders in Q1, far below the $1.4 billion from the year-ago quarter.
With Musk spending more time at Tesla, the focus on his government and political activities should diminish, potentially improving Tesla’s image and allowing him to address falling sales and advance the company’s technology roadmap.
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