Tesla: We See Some Risk to Our Near-Term Outlook From Tariffs, but Long-Term Outlook Unchanged

Key Morningstar Metrics for Tesla

• Fair Value Estimate: $250
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

President Donald Trump announced sweeping tariffs, including an additional tariff on imports from China that brings the total to 54%. Tesla shares were down 6% at the time of writing on the news.

Why it matters: Tesla TSLA assembles its autos and batteries in the US, which would be exempt from tariffs. However, the company sources many raw materials and battery components abroad. We estimate tariffs on these products could add at least 5%-10% to the vehicle cost.

• Higher costs require Tesla to either raise prices to maintain the same profit per vehicle on a dollar basis, or accept lower profits to not fully pass along the higher costs. Higher prices could reduce sales volumes. Either way, Tesla could see a near-term impact to free cash flow.

The bottom line: For now, we maintain our $250 fair value estimate for narrow-moat Tesla. We maintain the view that Tesla will likely be less affected by tariffs than other automakers because of the company’s local production as it does not currently import any vehicles into the US.

• At current prices, we view Tesla shares as fairly valued, with the stock trading just above our fair value estimate and in 3-star territory. As such, we recommend investors wait for the stock to offer a margin of safety before considering an entry point.

Coming up: Tesla plans to launch its more affordable SUV later this year. We expect the vehicle will be priced competitively with internal combustion engine vehicles in the affordable SUV category. The vehicle launch should help Tesla boost deliveries in the second half of the year and in 2026.

• In the upcoming earnings, we hope management provides an update on the timeline for the launch of the affordable vehicle. We also hope management will detail the impact of tariffs on Tesla’s unit costs going forward and share its strategy to either raise prices or take lower unit profits.