Al Root

Tesla stock was dropping sharply in Thursday trading after an epic gain on Wednesday.

Investors were relieved that President Donald Trump paused implementing some of his import tariffs for 90 days. There is a problem, though. Nothing has changed for the car industry.

Shares of the electric-vehicle maker, run by CEO Elon Musk, were down 8.8% in midday trading at $248.21, while the S&P 500 and Dow Jones Industrial Average were falling 4.2% and 3.4%, respectively.

Thursday's move comes after Tesla's 22.7% Wednesday gain. It was the second-best daily gain for the stock since May 9, 2013, when shares rose 24.4% after the company reported its first-ever quarterly profit. It was also a sharp reversal from the past week -- coming into Wednesday trading, Tesla stock had plunged more than 20% since Trump announced widespread tariffs on April 2.

Volatility makes things difficult to track. Through midday trading, Tesla stock was down 12% since "Liberation Day."

Most stocks, including shares of Tesla and other auto makers, were plagued by fears that the tariffs would lead to slower economic growth, higher costs, weaker profits, and lower demand.

The first problem for Tesla is that the car industry still faces 25% tariffs on imported cars. (The U.S. imports about half of the new cars sold, mainly from Mexico, South Korea, Japan, and Canada.) Tariffs as high as 25% on car parts are coming later, according to the White House.

Volkswagen's first-quarter earnings update drove the point home. Operating profit should be about EUR2.8 billion ($3.1 billion), down from EUR4.6 billion ($5.1 billion) a year ago. Wall Street was looking for EUR4 billion ($4.4 billion.) Tariffs weren't even the main reason, but the company took a charge related to tariffs for cars in transit. VW also warned that results for the rest of the year would be impacted by U.S. import tariffs.

Wall Street hasn't forgotten the tariffs. On Thursday, Goldman Sachs analyst Mark Delaney cut his Tesla stock price target to $260 from $275, saying it will be hard for car companies to pass on tariff-related costs. He kept his Hold rating on shares.

UBS analyst Joseph Spak cut his price target to $190 from $225, citing new trade policies that will raise costs and hurt demand. Spak rates Tesla stock Sell. Mizuho analyst Vijay Rakesh cut his price target to $375 from $430, noting the 90-day pause didn't apply to cars. He rates shares at Buy.

The average analyst price target for Tesla stock is about $341, according to FactSet, down about $32 over the past month.

The Wednesday rally was great, but Tesla and other auto makers might be excluded from coming tariff negotiations.

The second threat for Tesla: Trump didn't pause tariffs on China, which implemented retaliatory tariffs on the U.S. While import tariffs on American goods imported to the country don't have a significant impact on Tesla, it would prefer better U.S.-Chinese relations.

Tesla's most productive car plant is located in Shanghai. What's more, China accounted for more than 20% of Tesla's 2024 sales. It's also the home of EV maker BYD, Tesla's stiffest competition.

To be sure, Trump's actions on Wednesday show there is room to negotiate on tariffs. Auto investors, for now, are holding on to that hope.

Write to Al Root at allen.root@dowjones.com

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April 10, 2025 12:01 ET (16:01 GMT)

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