Could Tesla Benefit from North American Tariffs?
America’s auto industry is now facing tariffs on both sides of the border. However, Elon Musk, Tesla Inc.’s chief executive and head of the Department of Government Efficiency (DOGE), hasn’t commented on whether these import duties could affect his company.
Canada responded with matching 25 percent tariffs on $155 billion in U.S. imports after 25 percent tariffs were placed on Canadian goods.
Experts suggest the auto industry is one of the most vulnerable sectors, as parts can cross the Canada-U.S. border multiple times before final assembly. In a January earnings call, Tesla chief financial officer Vaibhav Taneja acknowledged that the electric vehicle giant isn’t immune to tariffs. “Over the years, we’ve tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses,” Taneja said. “Therefore, the imposition of tariffs, which is very likely, will have an impact on our business and profitability.”
Tesla’s Shifting Landscape
Tesla’s market cap has fallen significantly. The decline is linked to sinking sales, tariff announcements, and Musk’s controversial involvement in the Trump administration.
Flavio Volpe, president at Automotive Parts Manufacturers Association of Canada (APMA), suggests that buying a Tesla has become a political purchasing decision. Morgan Stanley analyst Adam Jones pointed to a “buyers’ strike,” with Musk’s political activity potentially discouraging left-leaning, eco-conscious consumers.
Jones remains optimistic about Tesla’s potential for the future, believing the company could be transitioning further into AI with its humanoid robots and self-driving cars. “While the journey may be volatile and nonlinear, we believe 2025 will be a year where investors will continue to appreciate and value these existing and nascent industries of embodied AI where we believe Tesla has established a material competitive advantage,” he wrote.
Tesla’s Canadian Connections
Steel and aluminum exports from Canada could be affected by an additional 25 percent tariff, while energy and energy resources, including critical minerals, will be subject to lower levies of 10 percent.
The 10 percent carve-out could potentially apply to lithium, nickel, and cobalt, used to produce Tesla batteries. However, the extent of Tesla’s reliance on Canadian parts and materials remains somewhat unclear.
“That’s the chef’s recipe and so, no one publishes that,” said Volpe. “I will say that probably a half dozen of the companies I represent supply Tesla, either with tooling for their plants or major components for their vehicles.”
In 2023, Piedmont Lithium Inc. announced a deal with Tesla to provide shipments of spodumene, a raw mineral that contains lithium, from its North American Lithium mine in Quebec, through the end of 2025. In 2022, Vale S.A. confirmed it would supply Tesla with Class 1 nickel from its Canadian operations for Tesla’s battery manufacturing facilities in the U.S. In 2021, Tesla opened a battery equipment manufacturing facility in Markham, Ont., and, in 2019, acquired Ontario-based battery manufacturer Hibar Systems Ltd.
Ontario premier Doug Ford threatened to halt shipments of nickel, a major component in Tesla batteries, across the border.
Volpe emphasized that Tesla is “a proximity business,” which means it sources many of its major components from areas close to its assembly plants in California and Texas.
Potential Impact of Tariffs
Volpe believes that Tesla will likely not be hurt by the 25 percent tariffs on Canadian vehicle sales, adding that it mainly focuses on the American market. In February, Tesla increased prices for its Model 3, Y, X, and S vehicles in Canada, following the end of a government rebate program.
“It is a very curious thing to do, especially in the moment of a tariff threat,” Volpe said. “I can only read it as the Canadian market isn’t as important to them — or at least profit and loss of the Canadian market isn’t as important to them as it is to regular car makers.”
Volpe highlighted that, unlike traditional automakers such as Toyota, Tesla’s production volume is significantly lower.
Could Tesla Benefit?
Musk has supported Trump’s plans to eliminate the $7,500 electric vehicle tax credit in the U.S., suggesting it would be “devastating” to Tesla’s competitors and potentially beneficial for Tesla in the long term.
“His competitors need the government subsidy to equalize the playing field,” Volpe agreed, but added that it’s rare for a CEO to acknowledge they could benefit from policies that could hurt their competitors. “Those are some pretty Machiavellian free market principles.”
However, Marc Busch, professor of international business diplomacy at Georgetown University, doesn’t believe any “grand conspiracy” surrounding tariffs gives Tesla an advantage. “Tariffs don’t have a Tesla carve-out,” Busch said. “It’s really important to understand that we have not seen anything hinting of an exemption or exclusion process.
Volpe suggested that Musk’s role in the White House means he may have influence over policy decisions that could benefit electric vehicles in the future. “He is, to quote the White House, ‘a special employee’ of this administration who, by rights, has influence over policy decisions around budget savings,” Volpe explained. “I think we call that a conflict of interest in English, but we’re on a new planet now, and maybe the English language needs to be adjusted to address the benefit that DOGE presents for Tesla.”
