Al Root

Tesla stock was rising in premarket trading Tuesday.

Predicting the electric vehicle maker's daily stock moves isn't easy, but shares are likely to get a boost from potential changes to President Donald Trump's car tariffs.

Shares were up 1% in premarket trading at $288.80, while S&P 500 and Dow Jones Industrial Average futures were each rising 0.1%.

One significant factor in Tuesday's trading should be tariffs.

Trump is expected to announce some changes to his auto tariff policies. The announcement could come at a rally in Warren, Michigan, slated to start around 6 p.m. Eastern time.

Essentially, changes mean auto tariffs won't be affected by any other tariffs related to steel and aluminum, fentanyl, or "reciprocal" tariffs placed on other countries. What's more, the coming 25% tariff on imported car parts could be mitigated by a credit worth 3.75% of a car's value. The credit helps parts companies adjust and would be ramped down over time.

Auto makers will still face a 25% tariff on imported cars.

Tesla doesn't import cars to the U.S., but it faces tariffs on imported parts. The 3.75% credit, however, could mitigate anywhere from two-thirds to all of the parts tariffs affect, based on Tesla's domestic parts supply.

Tesla didn't respond to a request for comment.

Tariff changes are good news for car shares. The changes could add to Tesla stock's recent momentum. Coming into Tuesday trading, Tesla shares gained for five consecutive days, up almost 20% since the company reported relatively disappointing first-quarter earnings about a week ago.

Tesla reported a first-quarter operating profit of $399 million, down 65% year over year and short of the $900 million Wall Street expected.

The post-earnings move has left some fundamentally minded investors wondering why. There are a few reasons to consider.

For starters, the stock market is always forward-looking. In the case of Tesla, investors are looking forward to CEO Elon Musk spending more time at Tesla and less time at the Department of Government Efficiency (DOGE) in Washington, D.C. Investors are also looking forward to a lower-priced model that can help sales in 2025.

Finally, they are looking forward to Tesla's AI efforts yielding dividends. Tesla plans to launch an AI-trained driverless taxi service in Austin, Texas, this June. It also plans to manufacture thousands of AI-trained robots by the end of the year.

The other reason shares rise on seemingly bad news is that Tesla's car business is cyclical -- more cyclical than the businesses of other technology stocks it is compared with. Investors try to buy cyclical stocks at the bottom when the news isn't good.

Cyclicality is part of the reason why Tesla shares trade for almost 135 times estimated 2025 earnings when the rest of the Magnificent Seven stocks trade for an average of 25 times. Tesla earnings aren't supposed to stay at 2025 levels. Wall Street estimates they will roughly triple by 2028, according to FactSet. Apple earnings are supposed to grow by 33%.

Time will tell if Wall Street has Tesla's earnings growth correct. For now, changing tariffs should be enough for investors on Tuesday.

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

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 29, 2025 04:31 ET (08:31 GMT)

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