Inflation Is Ticking Upwards. Should Tesla Investors Be Worried?

Key Points

• Consumer demand for Tesla vehicles is falling.

• The company's automotive profit margin is shrinking.

• Rising inflation could make matters worse, but it's not time to panic just yet.

• These 10 stocks could mint the next wave of millionaires ›

Inflation has cooled substantially since its recent peak, but some of the latest data shows that it's ticking upwards again. Recent research from The Motley Fool shows that core inflation rose to 2.7% in June, above the Federal Reserve's 2% target. That's putting additional pressure on companies and consumers, who are already feeling the pinch of high prices.

While no company is immune to inflation, electric vehicle (EV) companies are in a difficult spot right as tariffs have weighed down their businesses, and that includes Tesla (NASDAQ: TSLA). While investors probably don't need to worry quite yet, here's why inflation could be bad news for Tesla stock if it continues to march higher.

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Image source: Tesla.

1. Consumer demand is already stalling

Tesla's vehicles aren't as expensive as some luxury EVs, but they're still priced significantly higher than many gas-powered vehicles. The average transaction price for a Tesla is about $55,000 right now, compared to $49,000 for a traditional vehicle.

Tesla is already struggling from falling sales. The company's auto revenue fell 16% in the second quarter to $16.7 billion. Deliveries took a nosedive too, sliding 14% to 384,000. Tesla's already in the process of rebuilding its brand and trying to reinvigorate its sales, but if inflation continues to tick higher, it could make it more difficult for Tesla's sales to rebound. Interest rates are already elevated, and rising inflation means rates could stay higher for longer, putting additional pressure on consumer demand.

2. Tesla's automotive profit margin has declined

Tesla's auto profit margin was once the envy of the automotive industry, but it's declined sharply over the past few years. Its automotive gross margin was 18.4% in 2024, down from 28.5% in 2022. The trend continues to decline, with the company's automotive margin sliding to 17.2% in Q2.

If inflation continues to go up, it could put additional pressure on Tesla's margins as the company pays more for materials and labor. And with competition heating up in the EV industry, there's little room for Tesla to raise vehicle prices to offset a rise in costs.

3. Musk is already concerned about tariffs

Tesla is already facing rising expenses due to tariffs, and CEO Elon Musk said recently that "the cost impact is not trivial" for the company, adding about $300 million in additional costs.

Many economists think that the Trump administration's tariffs on U.S. trading partners could eventually push inflation higher. The problem is that no one knows for sure to what degree tariffs may affect inflation, or for how long. Consider what Federal Reserve Chairman Jerome Powell said about the situation recently:

"A reasonable base case is that the effects on inflation could be short-lived, reflecting a onetime shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed."

Inflation may only be a short-term problem, but it could also linger and cause more economic harm. But Musk isn't optimistic. He said on X in June that President Donald Trump's tariffs "will cause a recession in the second half of this year."

Tesla investors shouldn't panic just yet

While there certainly are concerns about how inflation might affect Tesla, it's probably not time for investors to worry too much just yet. It's not ideal that it's rising, but it's not unmanageable, especially compared to recent years when inflation peaked at 9.1% in 2022.

If tariffs continue to drive inflation higher at a rapid pace, that could become a real concern for Tesla investors. But for now, the company has more immediate issues to tackle -- like boosting sales and repairing its falling profit margins -- challenges that exist with or without inflationary pressure.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.