Turmoil at Tesla and the Challenges Facing Japan

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The Donald Trump administration's decision to impose a 25% tariff on imported automobiles delivers a major blow to Japan's auto industry. As a cornerstone of the Japanese economy and a key source of foreign currency, the automotive sector plays a vital role. Japanese manufacturers currently account for nearly 40% of the United States car market. This development poses a serious challenge for Japan. However, the implications may be even more severe for US automakers — particularly Tesla.

Why Tesla is Under Fire

Electric vehicles (EVs) represent less than 6% of the US auto market, and Tesla dominates nearly 70% of that segment. A post-election surge pushed its stock to around $480 in December 2024. By March 2025, however, Tesla's value had plummeted to less than half that.

Even as US Commerce Secretary Howard Lutnick appeared on FOX News urging Americans to "buy Tesla," Wall Street analysts have remained pessimistic. Clearly, something is going wrong at Tesla.

Following Trump's inauguration, Tesla CEO Elon Musk joined the White House. He has participated in Cabinet meetings and taken charge of the newly created Department of Government Efficiency (DOGE). There, he has led aggressive cost-cutting initiatives, including widely publicized layoffs of federal employees.

*The Tesla EV, Cybertruck, known for its futuristic body design. New York (©Reuters)*

The administration is aiming to cut federal spending by 30%, starting with dismantling USAID and eliminating Diversity, Equity, and Inclusion (DEI) programs. Additionally, the Department of Education's responsibilities have been transferred to local governments. Budget cuts and layoff announcements now appear almost daily, affecting agencies from the Pentagon to the IRS.

Public protests are growing in response, and Musk has become the focal point of public outrage. Once seen as a central figure in global innovation and influence, he is now rumored to be stepping down from several high-profile roles. The backlash is not only threatening his standing — it is also putting the future of Tesla, the company he founded, at risk.

Declining EV Demand

Once a status symbol, Tesla vehicles are now being parked out of sight as boycotts spread across the US. Some Tesla dealers have been attacked with Molotov cocktails, and charging stations have been vandalized. Violent incidents continue to rise. In an effort to stay safe, some Tesla owners have even placed "TOYOTA" stickers on their Cybertrucks to avoid being targeted.

*A protest held in front of a Tesla store in New York City, USA. March 15 (©Reuters/Kyodo)*

At the center of the protests is a website called TESLA TAKEDOWN. It has been organizing demonstrations under slogans like "Stopping Musk will help save lives and our democracy." Attorney General Pam Bondi has condemned the violence as "nothing short of terrorism," and several incidents have already resulted in indictments.

In a move to calm public anger, President Trump purchased a Tesla and showcased it in front of the White House. The FBI has launched a special unit to investigate the operators behind the protest website.

However, the backlash isn't confined to the US. According to auto industry research firm JATO, Tesla's new car registrations in Germany fell 76% year-on-year in February. In France, registrations dropped by 63%, and in Spain, by 75%. While demand for electric vehicles is generally declining, Tesla's plunge is particularly steep compared to other manufacturers.

Ceding Market Share

Part of the uproar stems from Elon Musk's inflammatory public remarks. He has repeatedly made pro-Russia statements, called for elections in Ukraine, and threatened to cut off Starlink terminals through his platform, X. During Germany's national election, he openly endorsed the right-wing party Alternative for Germany (AfD), triggering political backlash over perceived foreign interference.

Tesla expanded its production facilities in anticipation of growth, but with sales cut in half, it can no longer sustain them. Its investments in robotaxis and autonomous driving have yet to become profitable. Even in China —Tesla's most important market — the company is losing ground to domestic competitors like BYD.

What the Japanese Government Should Do

The Trump administration has issued an executive order to eliminate EV mandates. Environmental regulations promoting EV adoption are expected to be rolled back, too. For EV manufacturers, the business environment is only likely to grow more difficult. As demand slows, Elon Musk has also alienated liberal, left-leaning consumers — once among Tesla's most loyal drivers — through his political statements and behavior.

Shigeru Ishiba's administration likely lacks the resolve to directly challenge the Trump administration's auto tariffs. Still, there are quiet and strategic steps it can take.

The Japanese government currently offers generous purchase incentives for buyers of EVs made by companies like Tesla and BYD. These, of course, use taxpayer money. Buyers of luxury brands such as Teslas typically belong to high-income groups. Yet the national government pays ¥650,000 JPY ($4,437 USD) per vehicle in subsidies. In some regions, including Tokyo, local governments add another ¥650,000 JPY — bringing the total subsidy to ¥1.3 million ($8,875) per car.

Backing Fossil Fuels, Backing Japan

In addition, Japan's 7th Strategic Energy Plan calls for a significant increase in reliance on renewable energy, which is inherently unstable.

What the government should do instead is support the Trump administration's return to fossil fuels and show respect for its withdrawal from the Paris Agreement. Japan should stop spending taxpayer funds on imported EVs like those made by Tesla.

Wouldn't that be the most effective way to support Japan's own auto industry?

(Read the article in Japanese.)

Author: Koko Kato

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