What Happened?

Shares of electric vehicle pioneer Tesla (NASDAQ:TSLA) fell 9.3% in the afternoon session after data from the European Automobile Manufacturers Association showed the company sold 9,945 cars in January 2025, a drop of 45% from last year, continuing a streak of weak sales in the region. 

Separately, the trade debates are back after President Trump announced that the tariffs on Canada and Mexico will "go forward" when the temporary suspension expires in the coming week. This sparked fresh worries about supply chain issues and rising costs for companies that depend on cross-border trade, leading analysts to rethink the economic impact on affected industries. 

Tesla depends on a worldwide supply chain, getting parts and materials from many countries. Tariffs could raise costs and squeeze Tesla's profit margins. Higher tariffs might also make Tesla's cars more expensive in North America, which could hurt sales in its biggest market.

The shares closed the day at $302.49, down 8.4% from previous close.

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What The Market Is Telling Us

Tesla’s shares are extremely volatile and have had 111 moves greater than 2.5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 14 days ago when the stock dropped 5.2% on the news that Chinese electric vehicle manufacturer, BYD, unveiled "DiPilot," an assisted driving system (like a smart co-pilot or an extra pair of eyes while driving) that will integrate AI features from DeepSeek (Chinese AI Startup). 

This move could be seen as a strategic challenge to Tesla, whose Full Self-Driving (FSD) software has yet to receive approval in China. The timing of the announcement is also likely to raise more concerns about Tesla's competitive strengths following reports of weaker sales in China since the start of the year. 

Wall Street also wonders if Elon Musk is staying "locked in" following his interaction with Open AI CEO Sam Altman on social media platform X (formerly Twitter) regarding the potential acquisition of the ChatGPT company. 

Oppenheimer analysts noted, "While TSLA has shifted focus to being a Physical AI play, we view Elon Musk's bid for Open AI as a distraction from TSLA's challenges." 

Adding to Tesla's concerns, the recent 25% tariff announced by the Trump administration on steel and aluminum imports to the US could pose supply chain challenges. While the direct impact on Tesla remains hard to quantify, investors may worry about rising production costs, as these materials are critical for manufacturing Tesla vehicles.

Tesla is down 20% since the beginning of the year, and at $303.52 per share, it is trading 36.7% below its 52-week high of $479.86 from December 2024. Investors who bought $1,000 worth of Tesla’s shares 5 years ago would now be looking at an investment worth $5,693.

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