Hello from TIMEWELL's Hamamoto
Hello, this is Hamamoto from TIMEWELL Inc.
The Global Economy and Technology Are in Constant Flux
The global economy and technology landscape are in constant flux. Recent markets have truly been a "whirlwind" — tariff pauses rumored one moment, denied the next, with stock prices swinging wildly and investors watching events with bated breath. Against this backdrop of uncertainty, Tesla — the EV pioneer and leader of automotive transformation — is drawing more attention than ever.
The first-quarter 2025 delivery numbers fell short of market expectations and weighed on the stock. An earnings announcement is weeks away, and speculation about the company's current state and future is running rampant. On top of that, the tariff issue — capable of dealing a serious blow to the global auto industry — has burst onto the scene, intensifying market confusion. Tesla's own business trajectory, combined with complex macroeconomic crosscurrents, makes visibility extremely low.
To help make sense of it all, we invited Al Root — a veteran Wall Street analyst now serving as an editor at the prominent financial publication Barron's — to offer deep analysis of the latest developments surrounding Tesla and the markets. Root has extensive expertise in the industrial sector, particularly in automotive, and has long tracked Tesla, which he describes as "the 800-pound gorilla in the auto sector." We cover the impact of tariffs, Tesla's delivery numbers, FSD (Full Self-Driving) progress, and investment strategy in a volatile market — all from the expert's perspective.
- The Depths of Tariff Shock: Impact on the Auto Industry and Tesla's Position
- Tesla's Current State: Delivery Numbers, Cybertruck, and Hopes for a Model 2
- FSD's Evolution and a Long-Term Bet: Robotaxi, AI, and the Investor's View
- Summary: Charting a Course Beyond Uncertainty — Tesla and the Investor's Path Forward
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The Depths of Tariff Shock: Impact on the Auto Industry and Tesla's Position
One of the biggest forces currently shaking markets is the tariff policy introduced during the Trump administration and now potentially being reinforced. This issue goes far beyond a simple change in trade policy — it threatens to inflict serious damage on an entire global auto industry that depends on complex supply chains. Root offers detailed analysis of what tariffs mean at their core, and how they affect Tesla and other automakers.
Understanding the Basics of Tariffs
First, it's important to understand how tariffs work at a basic level. At their core, tariffs are taxes paid by importers. If a U.S. company imports $1,000 worth of steel from Europe and a 25% tariff is imposed, the importer must pay an additional $250 to the federal government — raising the effective cost to $1,250. This simple mechanism drives up prices and ultimately burdens consumers. For governments, it generates revenue, but its primary stated purpose is to encourage domestic production.
There are several reasons why markets have reacted so negatively to tariffs. One is the "shock" of a rate far higher than initially anticipated — average rates near 25% rather than the roughly 10% many companies had built into their plans. Many firms and analysts had modeled more modest tariff levels, so the abrupt reversal caused serious dislocation. The other factor is "uncertainty" about scope, duration, and room for negotiation. Trump's posture appears highly confrontational, and concerns are growing that there is little room for compromise. That uncertainty itself chills corporate investment decisions and market sentiment.
As a concrete example, Root cites General Motors. Bernstein downgraded GM to a "sell" and slashed its 2026 EPS estimate roughly in half — from around $10 to $5 — on the basis that tariff-related cost increases will materially hurt GM's profitability. GM has a cost structure of around $160 billion annually, and in theory, a 25% tariff across the board could add as much as $40 billion in costs — far more than GM's expected full-year profit of around $10 billion — illustrating just how severe the tariff impact could be.
In contrast, Root views Tesla as in a "relatively favorable position" compared to other automakers. The primary reason: virtually all vehicles Tesla sells in the United States are manufactured in the United States. Ford imports roughly 20% — relatively low — but GM and Stellantis are around 45% (mostly from Canada and Mexico), Hyundai/Kia around 65%, and Volkswagen around 80%. This high rate of domestic production gives Tesla an advantage in limiting direct cost increases when tariffs are implemented.
Even for Tesla, Tariffs Are Not a Zero-Risk Proposition
That said, even Tesla in its "relatively favorable position" cannot fully escape the tariff impact. Root estimates that if all tariff costs were passed through to prices, vehicles sold in the U.S. could rise by approximately 9% — because roughly 35% of the parts used in Tesla vehicles are imported from outside Canada and the U.S. Even domestically sourced parts (roughly 65%) can be indirectly affected if the suppliers manufacturing those parts use imported components. Supply chains are deeply intertwined, and impacts from second- and third-tier suppliers must also be considered.
What that 9% price increase means for Tesla's demand and market share is uncertain. Since other EV makers face similar tariff exposure, relative price competitiveness may be maintained, but the effect on competition with gasoline vehicles and overall consumer willingness to buy cannot be avoided.
Behind the tariff policy is a clear intent to strengthen U.S. manufacturing. But why such an aggressive, broad-based approach? As Root notes, moving production takes a long time. Even a fast-moving company like Tesla needs about three years from concept to production start-up for a new factory — and for other automakers, five years or more is common. Sudden high tariffs leave companies insufficient time to adapt, and may simply create more chaos. Alternative tools like tax incentives and subsidies exist, but tariffs are currently the instrument of choice.
Furthermore, this policy could fracture relationships with long-standing free-trade partners — Canada, Mexico, the EU, Japan, Korea — that were built up over decades under agreements like USMCA (successor to NAFTA). Root warns that tariffs broad enough to encompass virtually all countries, including allies, risk creating not "America First" but "America Alone." International backlash and retaliatory tariffs could harm the entire U.S. economy.
Analysts are treading carefully on earnings revisions, but if the situation drags on or worsens, further downgrades and estimate cuts may follow. How the entire auto industry navigates this tariff storm remains an open question.
Tesla's Current State: Delivery Numbers, Cybertruck, and Hopes for a Model 2
Multiple Factors Behind the Q1 Delivery Decline
While the external tariff storm rages, attention is also focused on Tesla's own operations. Q1 2025 delivery numbers that fell below market expectations have revived concerns about growth. Root analyzes why deliveries declined — flagging the Model Y production transition, brand image, and excitement around the eagerly awaited next vehicle.
On Q1 deliveries declining about 13% year-over-year to approximately 337,000 units, Root points to several overlapping factors. The biggest is the production line changeover of the flagship Model Y to a new version (codenamed Juniper). The temporary production slowdown during that transition was unavoidable. Since Model Y accounts for the bulk of Tesla's sales, any disruption to that line has an outsized impact on total numbers. Once the transition runs its course, deliveries are expected to recover.
What cannot be ignored, however, is the impact on brand image. Elon Musk's political statements and actions may be dampening purchasing intent among some consumers. Root acknowledges the risk of alienating traditionally EV-friendly liberal-leaning consumers, while noting the need to weigh potential new support from conservative buyers. Most analysts agree, though, that ideally Tesla is chosen as "buying a car" — not as a political statement. Ross Gerber, a prominent California investor, summed it up well: "The brand has been damaged, but people still buy it because it's still the best EV." The comment speaks to Tesla's enduring product strength while acknowledging the brand as a latent risk.
One thing analysts and investors want to see is Musk stepping back from political activity and returning his focus to Tesla's operations and technology development. Root says that if Musk were to signal at the Q1 earnings call something to the effect of "spending more time in Austin than in Washington," markets could turn positive and the stock could find a catalyst. Tesla's stock has historically rallied when Musk reaffirms his commitment to the company, and markets are hoping for "their Elon" to come back.
The Cybertruck: Strong Buzz, Sluggish Sales
Also notable in the delivery picture is the Cybertruck. The "S/X/Cybertruck" combined tally was roughly 21,000 units in Q1, with Cybertruck's share still limited despite all its fanfare.
Root offers a sober assessment. First, he notes that while there was a massive backlog of reservations, many did not convert to actual purchases — not surprising given how small and refundable the reservation deposits were. The price is also a factor: originally announced at roughly $40,000, the vehicles now on sale cost close to $100,000, putting them firmly in the luxury tier. Root is blunt: "Cars over $100,000 represent less than 10% of the total market. To sell hundreds of thousands of units per year, you need a price point below $50,000."
At present, Cybertruck is the top-selling electric pickup truck in the U.S. — but that's in a niche luxury EV segment. Realistic quarterly sales are in the 10,000–15,000 range, and hitting an annual target of 200,000–250,000 units would require the introduction of a more affordable model — something like a $45,000 rear-wheel-drive version.
Key points on the Cybertruck:
- Despite a large initial reservation backlog, actual sales have been disappointing
- The current price range ($80,000–$100,000) limits it to the luxury market and caps volume
- Inventory is visible on the website, suggesting a demand problem rather than a supply problem
- Musk himself has acknowledged that its distinctive design means it won't appeal to everyone
- Achieving annual sales above 200,000 units requires introducing a significantly cheaper model ($40,000–$50,000)
- A more conventionally designed pickup based on the Cybertruck platform (analogous to how the S/X and 3/Y share platforms) is plausible
- For now it lives as a premium niche; mass-market volume may be left to a Model 2/Q or a different truck
Root says he hasn't given up on the Cybertruck entirely, but urges a sober look at current sales pace and pricing.
Meanwhile, one of the most consequential elements of Tesla's future growth story is the long-awaited affordable model, commonly called the "Model 2" or "Model Q." Analysts believe specifics — design, specs, price, launch timeline — will be critical stock catalysts. As noted by prominent auto engineer Sandy Munro, this lower-cost model is widely expected to share significant components and platform architecture with the Cybercab robotaxi vehicle under development. The leading hypothesis is that it will emerge as a hatchback — essentially a Cybercab with a steering wheel added. If this model reaches the market at an affordable price, it could reignite Tesla's volume growth dramatically.
FSD's Evolution and a Long-Term Bet: Robotaxi, AI, and the Investor's View
No discussion of Tesla's long-term value is complete without addressing FSD (Full Self-Driving) progress. Even as tariffs and short-term delivery swings roil markets, FSD is the potential "game changer" that could transform Tesla from an automaker into an AI technology company.
Tesla currently offers "FSD (Supervised)" — advanced driver assistance under driver monitoring. The technology continues to improve. Root himself says he finds it "impressive, it's improved, it's really cool, and I use it frequently." Recent signals suggest rollouts in China and hints at European introduction, with global adoption accelerating.
The Market Is Really Watching for Unsupervised Full Self-Driving
What markets are truly watching for, however, is genuinely driverless operation — the robotaxi. Tesla is reportedly planning a robotaxi demonstration in Austin, Texas as soon as June, and negotiations with city and transportation authorities are progressing. If Tesla actually launches a driverless passenger service, it would be a technical milestone while simultaneously transforming the company's fundamental value proposition.
Root is emphatic: "If Tesla gets cars driving without drivers in cities, that's a really big deal." Currently Waymo (Google-affiliated) operates limited robotaxi services in select areas, but if Tesla can pull this off using only cameras — no LiDAR — and leverage its massive existing fleet, the impact would be incalculable. It could also put to rest years of debate about whether "no LiDAR means it's impossible."
The potential value of an FSD-enabled robotaxi business is debated among analysts. Some (such as ARK Invest's Cathie Wood) project it could add tens or even hundreds of billions of dollars of value. Others are more cautious — analysts like Gary Black argue that FSD's near-term value lies primarily in boosting vehicle sales as an attractive feature. Root sums it up: "When robotaxi becomes real, we'll be back to debating whether that's worth $200 in the stock, or $50, or $800."
Robotaxi realization faces not only technical challenges but also the major hurdle of regulatory approval. Root notes that initial deployments will likely be geofenced — limited to specific areas and conditions (such as weather). A constraint like "no operations on foggy days" does not negate the technology's viability. What matters is whether governments certify safety, issue operating licenses, and whether service can be sustained.
Alongside FSD, Tesla has faced negative press — vehicle vandalism and escalating political tensions around Musk's behavior. Root argues that this "politicization" is not good for the brand. He points to other companies that have weathered crises (VW's Dieselgate, Ford's Pinto scandal) and notes that Tesla's product strength, combined with its control of distribution without relying on dealer networks, is a key advantage. Comparing to the Bud Light episode (brand damage plus substitutes available), Root suggests that as long as Tesla EVs maintain strong competitive position, the recovery path is real. Some analysts even talk about a "comeback story" — FSD success or a new model hit restoring Tesla's shine. "In America, everyone gets a second chance," as one analyst put it.
For Investors: Stay Calm and Stay in the Market
In this environment of heightened uncertainty, how should investors act? Root draws on his Wall Street experience to offer a grounded perspective. Market declines have always happened — recessions, financial crises, pandemics, wars. Historically, the S&P 500, regardless of when you bought in, has delivered near-flat at worst and meaningfully positive returns over a 10-year holding period. The core strategy is therefore: "Time in the market, not timing the market."
Rather than panic-selling, viewing pullbacks as buying opportunities can be effective — though even that should be done carefully. Root recommends only marginal portfolio adjustments in response to conditions — shifting equity allocation up or down by a few percentage points (e.g., 50% to 55%, or 50% to 45%), and gradually adding to positions in high-conviction companies when prices reach predetermined attractive levels. For Tesla stock specifically, Root says he would "never short it," but adjusts his position size depending on valuation.
Most important is staying focused on the long term, not getting whipsawed by short-term noise, and acting rationally and with discipline based on your own investment objectives and risk tolerance. While waiting for the storm to pass, sometimes the best move is no move at all.
Summary: Charting a Course Beyond Uncertainty — Tesla and the Investor's Path Forward
Amid turbulent market conditions, Tesla faces the new headwind of tariffs while still drawing global attention on the strength of its innovation and growth expectations. As Root's analysis makes clear, tariffs are a serious challenge for the entire auto industry, and even Tesla — with its high domestic production ratio — cannot escape some price increases and supply chain disruption. This uncertainty is likely to weigh on Tesla and other auto-related stocks for the time being.
Yet Looking at Tesla's Own Operations
Looking at Tesla's own operations, the Q1 delivery decline is largely attributable to the temporary Model Y production transition, and a recovery is expected. The brand image risk tied to Musk's public behavior remains a latent concern, however. The market wants Musk back at the helm focused on Tesla — pushing forward on FSD and the eagerly awaited affordable model (Model 2/Q). Robotaxi realization in particular has the potential to dramatically increase Tesla's enterprise value, making technical and regulatory progress the key watch item. The Cybertruck remains a niche luxury product for now, but the launch of affordable models could open new markets.
For investors, this is a moment that calls for clear-headed judgment. Uncertainty around tariffs, interest rates, and geopolitical risks is high — but as Root advises, resist the urge to react to short-term swings and keep a long-term perspective. Even for a high-growth-expectation company like Tesla, macro forces are unavoidable. Rigorous portfolio risk management, combined with time diversification and asset diversification, is the sensible approach to navigating an uncertain era.
Can Tesla weather the tariff storm and return to a strong growth trajectory powered by FSD and next-generation models? And in the midst of this market turbulence, what strategy should investors pursue? With key data points — earnings, FSD updates, tariff negotiations — continuing to emerge, clear-eyed analysis and a long-term perspective will be essential for charting the path forward.
Reference: https://www.youtube.com/watch?v=Swme65DpYtI
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