Why Did Tesla (TSLA) Stock Surge Despite Chinese Tariff Concerns?

Shares of Tesla (NASDAQ:TSLA) gained nearly 7.3% on Wednesday, despite heightened concerns about an impending trade war between the U.S. and China that could put the electric car giant at risk.

Chinese regulators on Wednesday released a list of American products that the nation plans to target with additional tariffs in retaliation for the Trump administration’s latest trade rhetoric. This list focuses on raw goods like soybeans and meat, as well as vehicles manufactured U.S.

The choice to hit American automakers with new tariffs could disproportionately affect Tesla because the company depends on U.S.-built vehicles for its Chinese sales, whereas behemoths like General Motors (NYSE:GM) and Ford (NYSE:F) have facilities in China and actually import very few cars into the country.

China’s tariffs add to a growing list of near-term concerns for Tesla, which includes a massive new recall, a Moody’s downgrade, and an investigation of a fatal crash involving its Autopilot feature. Over the weekend, enigmatic Tesla chief Elon Musk drew flak after joking about his company declaring bankruptcy on April Fool’s Day—a move that investors felt was mistimed given the circumstances.

Tesla faced even more criticism on Monday when a number of reports suggested that the automaker had once again fallen behind on its Model 3 production schedule, and the release of the company’s Q1 delivery report last night seemed to confirm those fears.

Tesla said that it delivered 9,766 Model 3 vehicles during the first quarter, lagging its goal of 10,000. Nevertheless, investors seemed bullish about the optimistic tone that the company took in its report.

For one, Tesla mentioned that Model 3 production witnessed a fourfold increase from the previous quarter, marking the “fastest growth of any automotive company in the modern era.”

The report also reiterated the company’s plan to reach a production rate of 5,000 Model 3 units per week in about three months. Tesla said that it produced 2,020 Model 3 vehicles in the trailing seven days and expects to make another 2,000 over the next week.

But for investors, perhaps the most exciting piece of the report was the suggestion that Tesla could see “strong positive operating cash flow” as early as Q3. The company confirmed that this means it will not need an equity or debt raise this year.

Still, Tesla’s optimism has not yet spread to analysts. Within the past 60 days, a number of negative revisions to the company’s full-year earnings projections has sent our Zacks Consensus Estimate a staggering $2.09 lower. The automaker is now expected to witness an adjusted loss of $7.00 per share in the current fiscal year.

This negative revision activity has earned TSLA a Zacks Rank #4 (Sell). This ranking could change if Tesla’s latest delivery report inspires positive analyst adjustments, but until then, our model says this stock could continue to struggle.

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