Following Elon Musk's endorsement of Donald Trump, Tesla (TSLA, Financial) shares soared nearly 31%, adding approximately $250 billion to its market value. This remarkable increase has drawn significant attention from Wall Street, with calls for caution given the potential risks involved. Despite the stock's impressive performance, opinions on the impact of Trump’s administration on electric vehicles, including Tesla, are divided. Some analysts believe there is a 28% downside risk for Tesla's stock due to these uncertainties, marking the largest valuation gap since the post-pandemic tech boom.
While Musk’s leadership in government efficiency initiatives and the expectation of a more favorable regulatory environment have bolstered Tesla's stock, skepticism remains about Trump's stance on electric vehicles. This divergence in views presents challenges for analysts assessing the administration's policy impacts on Tesla. Nonetheless, Tesla's long-term prospects continue to attract bullish investors despite short-term overvaluation concerns.
Market experts point out that Tesla's valuation remains a complex task, complicated further by Musk's personal brand influence and potential future products like rumored robo-taxis. The post-election stock surge, coupled with better-than-expected third-quarter results, has inflated Tesla’s already high valuation, with its forward P/E ratio reaching 104.
Analysts are now evaluating how potential shifts in electric vehicle policies, geopolitical implications, and inflationary concerns under Trump’s administration might affect Tesla's fundamentals. While some policies may benefit Tesla, such as easing federal regulations on autonomous vehicles and supporting humanoid robots, others, like changes to the Inflation Reduction Act or new tariffs, could also play a role.
Despite the uncertainties, analysts from Deutsche Bank and Morgan Stanley maintain a "buy" rating on Tesla, highlighting the potential benefits of Musk's influence and connection with the Trump administration. However, the sustainability of Tesla’s recent surge is under scrutiny as political momentum remains unpredictable.
As certain Trump-related trades lose momentum, Tesla’s stock saw a 6.2% decline, closing at $328.49. Yet, Musk’s appointment as the new government efficiency department head sparked a 3.3% rise in pre-market trading.
In conclusion, while Tesla's stock has experienced a significant rise following Musk’s Trump endorsement, differing views on policy impacts have introduced potential risks. Although long-term optimism persists, short-term overvaluation and valuation uncertainties warrant caution among some investors.
