Elon Musk Is Trump’s ‘New Star.’ What Tesla Stock Gains From His Election Win.
CEO Elon Musk pulled off a windfall for the auto maker. Now the stock’s fundamentals need to catch up to its heady price.
Elon Musk created the perfect hedge for Tesla stock with his support of Donald Trump.
The president-elect isn’t a friend of electric vehicles. He has said they are a risk to the U.S. auto industry and promised to eliminate tax credits on EV purchases as well as emission “mandates” necessitating that auto makers build battery-powered cars. The potential impact was obvious to the market, which knocked Lucid Group stock down 5.3%, Polestar Automotive Holding down 8.2%, and Rivian Automotive down 8.3% on the day after the election. The moves seem appropriate, given that the changes probably mean lower U.S. sales for the EV start-ups.
Tesla was the exception. Its stock rose 14.8% on Wednesday and added $119 billion in market cap, more than any single stock except Nvidia, which is worth four times as much.
Such a rise was far from preordained. But by aligning himself closely with Trump after a failed assassination attempt in July and spending some $130 million to help get him elected, Musk greased the wheels. There is little reason to doubt the Tesla CEO’s sincerity. Still, Tesla would have lost $66 billion in market value if it had dropped 8% like Rivian, so its one-day swing works out to $185 billion in market value—exceeding the amount that Musk donated by more than 1,400 times. His net worth increased by some $25 billion the day after the election.
Clearly, the market is betting that Musk bought a great deal of protection for Tesla shares.
“Musk made a bet for the ages,” says Wedbush analyst Dan Ives, who rates Tesla a Buy and has a $300 price target on the stock, up just 1% from Thursday’s close of $296.91.
Now the company’s fundamentals need to catch up with its share price.
As of Thursday’s close, Tesla’s stock trades at 93.8 times 12-month forward earnings, its highest since April 5, 2022, when EV deliveries were growing 40% year over year. Tesla deliveries aren’t expected to grow at all in 2024, although Musk believes that growth will return in 2025. It’s also well above its three-year average of 62.9.
It’s an expensive valuation. Barron’s estimates that Tesla’s car and energy-storage businesses are worth about $200 a share based on expected growth over the next decade. Paying more than that would require Tesla’s earnings to grow faster. Accelerating growth could come from better car sales. (Tesla is expected to launch a lower-priced model in early 2025.) Or it could come through new artificial-intelligence revenue. (Tesla plans to launch a fleet of AI-trained self-driving taxis in late 2025.)
Or it could be a bet on benefits arising from Musk’s relationship with Trump. In his victory speech, Trump singled out Musk for praise, calling out SpaceX’s midair rocket catch last month and crediting Starlink’s space-based Wi-Fi service for saving lives when North Carolina was hit by Hurricane Helene in late September.
“Let me tell you, we have a new star. A star is born—Elon,” Trump said. “[Musk is] a character, he’s a special guy, he’s a super-genius. We have to protect our geniuses—we don’t have that many of them.”
The two have even discussed a position for Musk in a second Trump administration, with Musk looking at ways to reduce government waste and inefficiency. In typical Musk fashion, he dubbed it the Department of Government Efficiency, or DOGE. Normally, investors might worry about Musk being stretched too thin. He runs multiple companies, after all, and apparently uses his downtime to become a top-ranked player of the videogame franchise Diablo.
Investors, though, appear to have gotten used to Musk’s multitasking—and they may be pricing in some upside to Musk’s involvement with Trump. With Trump in office, Musk and his car company are likely to receive less scrutiny from the Securities and Exchange Commission and Department of Justice, which are looking into Tesla’s driver-assistance technology and other issues. If Musk is put in charge of reducing government spending, he could target the National Labor Relations Board, which would take some power from labor unions, even if none represent Tesla’s U.S. employees.
But it’s more likely that investors are starting to price in better fundamentals. While the elimination of EV tax credits would harm the industry as a whole, Wedbush’s Ives believes that Tesla has the scale to be profitable without tax credits—as it has in the past. Fewer government incentives also mean less competition from traditional auto makers, leading to a larger market share for Tesla. In all, those changes could be worth $40 to $50 of value per share, Ives says.
BofA Securities analyst John Murphy is even more bullish. Tesla should be “indifferent” to new EV policies from a second Trump administration, he writes, and could benefit from fewer regulations dealing with self-driving cars. On Thursday, he raised his target price by $85, to $350 a share, the highest among major brokers tracked by FactSet. Murphy’s target values Tesla at about $1.1 trillion, or 106 times consensus 2025 earnings estimates aggregated by FactSet.
That target may prove to be too pessimistic. Tesla’s recent gains sent the stock above recent resistance—a term used by technical stock market analysts who look at stock charts to get a sense of levels where investors have bought and sold stocks in the recent past. It now has a “bullish chart pattern,” says CappThesis founder Frank Cappelleri. If shares can stay above $270 in the coming days, he thinks $400 could be in play in the coming months, up 35% from Thursday’s close and near its record high.
Maybe investors have gotten ahead of themselves, but it’s also possible that the market is sniffing something out. Either way, earnings growth has to accelerate for Tesla stock to maintain recent momentum into 2025 and beyond—no matter who is in the White House.