Electric vehicle maker Tesla (TSLA, Financial) has seen its market value skyrocket by nearly $250 billion within a week, thanks to anticipated benefits from Elon Musk's support for Donald Trump. Tesla's shares surged over 29% last week, and continued to rise nearly 9%, reaching their highest level since April 2022. However, the rapid climb has outpaced most Wall Street target prices, prompting analysts to advise caution to investors.
Earlier in the day, U.S. President-elect Trump announced that Musk will lead a newly proposed "Department of Government Efficiency" alongside entrepreneur Vivek Ramaswamy. This department aims to reduce expenses, deregulate, and restructure federal agencies. While mainstream views suggest Musk's role in the new administration could favor his businesses, analysts find it challenging to gauge the extent of potential benefits. Even Tesla bulls admit the recent rally may not be justified in the short term.
Adam Sarhan, CEO of 50 Park Investments, remains bullish but acknowledges the market's explosive reaction to Trump's election as overheated for Tesla's current rally. Valuing Tesla has always been difficult, with target prices varying significantly. Some see it as an automotive company, others as a tech company, or even both. Regardless, Tesla's current valuation is extraordinarily high. Despite a 6% stock pullback, its forward P/E ratio stands at 104, compared to 32 for the "Magnificent Seven" and single digits for traditional automakers.
On a macro level, Trump's threat to reverse Biden's electric vehicle policies, coupled with tariffs that could trigger higher inflation and interest rates, presents challenges for EV stocks, especially as Tesla's sales growth slows. Deutsche Bank analyst Edison Yu notes that some Trump policies might benefit Tesla, such as simplifying federal regulations on autonomous vehicles and supporting humanoid robotics technology. Yu suggests Tesla could expand its lead over competitors without Biden's EV policies, but acknowledges the difficulty in quantifying these benefits.
Despite uncertainties, Yu and Morgan Stanley analyst Adam Jonas both hold a "buy" rating on Tesla.
