2 Ways to Win the Tarrif Trade: Toyota and Tesla

Key Points

• Recent trade tariffs announced by President Trump may affect some automakers differently, and these two companies have the potential to go higher.
• Toyota offers value with a low P/E ratio, strong U.S. presence, and rising institutional interest.
• Tesla provides momentum and growth potential as a U.S.-based automaker with bullish Wall Street targets.

Short-term volatility is whipsawing the S&P 500 and global equity markets, and the root cause appears to be the latest wave of trade tariff announcements by President Trump.

While the market is pricing in tariffs as a net negative, at least for now, the reality is that this short-term pain has enough factors playing behind it to turn this situation into long-term gains across the board.

One of the main industries most directly impacted by the new tariffs is the automotive sector, where tariffs could have a twofold effect in the future.

First, foreign automakers could consider moving some of their manufacturing logistics to the United States, which is one of the largest car markets in the world. Second, those who already dominate a larger share of the market will likely see more demand and be able to absorb any cost increases.

Through economies of scale and the implementation of technology in their assembly processes, two companies in the sector could be very well positioned to generate additional demand: Toyota Motor Co. NYSE: TM and Tesla Inc. NASDAQ: TSLA.

Toyota: A Value Play for Inflation-Sensitive Investors

Toyota owns a large share of the American auto market, and this brand caters to the middle class very well. Its low-cost manufacturing setup also allows its cars to be cheaply serviced and maintained, a characteristic that will likely become attractive during this inflation-sensitive environment.

That being said, the market has some concerns about Toyota, considering that this Japanese-based company is highly exposed to the recent tariff rollouts.

Still, Toyota’s current valuation presents a compelling opportunity. It trades at a price-to-earnings (P/E) ratio of just 6.9x, compared to an industry average of 16.3x—a steep discount for a major market player.

Because investors cannot often get such a major player in the market for this big of a discount, some institutional buyers started to buy the stock ahead of time, betting that these tariffs might benefit Toyota in the long run.

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For example, Northern Trust Corp decided to boost their holdings in Toyota stock by as much as 66.5% (as of February 2025), bringing their net position to a high of $187.1 million. That kind of backing serves as a strong vote of confidence for investors.

In addition, Toyota's $4.63 annual dividend translates into a 2.8% yield, which not only outpaces inflation but adds a layer of defensive value for investors seeking stability.

Tesla: A High-Momentum Bet on American Strength

On the opposite end of the valuation spectrum is U.S.-based Tesla, which has gained 56.2% over the past 12 months, outperforming its auto sector peers and the broader S&P 500—even during the tariff-induced market correction.

Its resilience during the week of the tariff announcements may indicate investor confidence in its U.S.-based operations and long-term outlook.

By trading at a lofty P/E of 131x, Tesla draws a lot of criticism from bearish traders who deem it expensive. However, growth investors argue that premium valuations are justified by continued innovation and market leadership.

Wall Street seems to agree. Analysts at Cantor Fitzgerald rate Tesla Overweight, with a $425 price target—implying a 59% upside from current levels, even after factoring in tariff-related market pressures.