There was an epic rally across the pond yesterday (9 April), with the Nasdaq Composite surging 12.16% for its best day since 2001. Incredibly, Tesla (NASDAQ: TSLA) stock soared 22.7% — its second-best daily gain on record!
This will come as a relief to those who invested in Tesla in mid-December, though the stock is still 43% below that high, even after this sudden jump. Over five years, the share price is up 612%.
What’s going on?
Yesterday, President Trump issued a 90-day pause on most ‘reciprocal’ tariffs, which sparked the massive relief rally. However, the 25% auto tariffs remain, meaning a lot of uncertainty remains for Tesla shareholders.
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Moreover, China tariffs were hiked to 125%, which is another major headache. China is the largest electric vehicle (EV) market in the world and accounted for 21% of Tesla’s global sales last year.
It’s no secret that government sentiment in China often shapes the business environment. By directly aligning himself with a president who, in the eyes of Beijing, is waging economic war, Elon Musk risks drawing the ire of Chinese leaders.
Whether through regulatory crackdowns, media criticism, or nudging consumer behaviour, the authorities have plenty of levers to pull to bring companies to heel. My fear is that Tesla’s China operations could get caught in the crossfire during a protracted trade war between the world’s two largest economies.
To give one example, authorities could strongly encourage consumers to favour Chinese EV brands over foreign automakers, especially US ones. And there are plenty to choose from, including BYD, NIO, and Xpeng.
Tesla is already facing regulatory challenges in China with its AI/self-driving technology, but that could be the tip of the iceberg if US-China trade tensions escalate further. So I don’t think yesterday’s announcement really changes much, and the share price could easily pull back in the coming days.
But robotaxis…
Musk has been telling investors that robotaxis are just a couple of software updates away for close to a decade now.
Somewhat confusingly though, Tesla cars have long had a Full Self-Driving (supervised) option. It’s not the proper thing though, as owners still need to stay in charge of the wheel and can’t chill in the back with a movie.
But in June, Tesla plans to finally launch its long-awaited robotaxi service in Austin, Texas. The technology will be AI-based and not reliant on high-precision local mapping like most competitors. This could make it highly scalable and give Tesla an enormous competitive edge.
The vehicles, the Teslas will be in the wild with no one in them in June in Austin. So what I’m saying is this is not some far-off mythical situation.
CEO Elon Musk, Q4 2024 earnings call.
Should I invest?
Based on current 2025 estimates, the stock is trading at a forward price-to-earnings multiple of 96. The continuation of this sky-high valuation rests upon the successful deployment of robotaxis over the next few years.
Put simply, it’s crunch time for Tesla, as we’ll soon find out whether the technology is truly up to scratch. If it is, the stock could take off like a rocket again.
On the flip side, an early high-profile incident could throw things off track.
Me? I’m going to stay on the sidelines for now, with plenty of popcorn.
