/Tesla%20Dealership%20with%20Cars%20in%20Lot.jpg)
The 2024 U.S. presidential election is shaping up to be a pivotal moment for various sectors, including the electric vehicle (EV) industry. In a recent CNBC appearance, analyst Dan Ives of Wedbush Securities explained, "A Trump presidency would, at the end of the day, be bullish for Tesla, negative for EVs… especially if you start to see those EV rebates roll back."
While conventional wisdom might suggest that the prospect of another Donald Trump administration would be universally detrimental to companies focused on cleaner energy initiatives, Tesla's (TSLA) distinctive market position and its CEO's reported relationship with the former president could set the stage for unexpected benefits. From potential regulatory changes to trade policies favoring domestic production, Tesla may be poised to capitalize on a political landscape that could prove challenging for its competitors.
Of course, it's still early enough in election season that neither party has officially named a nominee yet, so let's not get ahead of ourselves. But with TSLA ripping higher off its recent lows, it's an opportune time to take a look at the catalysts that could drive the stock's next move.
Tesla Strings Together a Win Streak
Tesla, Inc. (TSLA), newly based out of Austin, Texas, has been a major player in the EV and clean energy industries since its founding in 2003.
Recently, Tesla's stock has been on a wild ride. After spending the first quarter of 2024 in the bottom rungs of the S&P 500 Index ($SPX), the stock has made a significant comeback off its lows. Tesla rallied sharply after its Q1 earnings in late April, despite missing estimates, and closed Friday's session on an 8-day win streak. That includes a surge of over 10% on Tuesday alone following better-than-expected Q2 delivery numbers.
This impressive rally has now erased the stock's losses for the year, and TSLA is up 1.2% on a YTD basis. Its 52-week decline has narrowed to about 11%.
With a market cap of $785 billion, Tesla is one of the most valuable automakers globally. Toyota (TM) is valued at $277 billion, for comparison.
Priced at about 96.5 times forward earnings, the market has high expectations for TSLA's future growth. This high valuation underscores Tesla's dominant position in the EV market and its potential to revolutionize the automotive industry. However, such a high P/E ratio also means investors are paying a premium for Tesla's growth prospects, which could be risky if the company doesn't meet expectations.
CEO Elon Musk has argued that Tesla's valuation should account for its potential in artificial intelligence (AI) and robotics, though the company still makes its revenue by selling cars. Given that, expectations will be running high ahead of the company's planned robotaxi event for early August.
Operationally, Tesla delivered 443,956 vehicles in Q2 2024, surpassing Wall Street's estimates of around 438,000–439,000 vehicles. This represents a 14.8% increase from Q1 2024, but a 4.8% decrease compared to Q2 2023. Despite the year-over-year decline, TSLA stock popped as investors cheered the beat on estimates, as well as indications that the company's built-up inventory is starting to unwind.
The reaction in the stock was not unlike what we saw after Tesla's Q1 2024 earnings report on April 23. The company reported earnings of $0.45 per share, missing analysts' expectations by $0.04, and marking a significant decline from the $0.85 per share reported in Q1 2023. However, TSLA rallied after earnings, as management seemed to indicate the worst was over after a confluence of negative outliers impacted Q1 results.
How Would Tesla Stock Benefit from a Trump Administration?
Under a potential Trump administration, Tesla might find itself in a uniquely advantageous position. Despite Trump's generally skeptical stance on EVs - and the accompanying tax credits - there are several factors to suggest that Tesla could thrive under his administration, as Ives suggests.
The budding relationship between Elon Musk and Donald Trump is particularly noteworthy. Reports indicate that Musk and Trump have been in frequent contact, discussing various topics, including electric vehicles and America's role in the EV market. Musk has even hinted at possibly taking on an advisory role in a potential Trump administration, which could give the CEO significant political clout, and influence over policy decisions. This growing alliance could be a game-changer for Tesla, especially given Musk's shift to the right and his increasing criticism of the Biden administration's policies on migration, healthcare, and diversity initiatives.
From a regulatory standpoint, a Trump presidency could create a more relaxed environment that benefits Tesla's more ambitious projects, particularly in autonomous driving. During his previous term, Trump pushed to relax safety rules that added billions to the production costs of fully autonomous vehicles. A continuation of this approach could accelerate Tesla's progress in self-driving technology, giving it a competitive edge over other automakers. Moreover, Trump's reported plans to dramatically reduce funding for the Environmental Protection Agency (EPA) could also be a boon for Tesla, which has run afoul of the agency on more than one occasion.
Tesla's strong domestic manufacturing presence also aligns well with Trump's "America First" policies. Tesla is the only domestic automaker to feature prominently in Cars.com's 2024 American-Made Index, with several of its models ranking highly for their contribution to the U.S. economy. This focus on American manufacturing could garner favorable treatment from a possible Trump administration, potentially leading to incentives or support that further bolster Tesla's market position.
Additionally, Trump's critical stance on China and his efforts to reduce reliance on Chinese manufacturing could indirectly benefit Tesla, which has been expanding its production capabilities in the U.S. and other regions. In fact, at least a few of Trump's critical EV comments have been aimed squarely at Chinese rivals to Tesla. By positioning itself as a leader in American-made EVs, Tesla can capitalize on any protectionist shifts in trade policies or incentives aimed at promoting domestic production.
What's the Wall Street Forecast for Tesla?
Wedbush's Ives remains one of Tesla's top bulls on Wall Street. He recently raised his price target to $300 from $275, reflecting his confidence in the company's long-term prospects. Ives even sees a path for Tesla to reach a $1 trillion market cap, driven by its leadership in the EV market and advancements in autonomous driving technology.
However, the broader analyst community is more cautious. Based on recommendations from 33 experts in coverage, the consensus is a "Hold" on Tesla stock, with a mean target price of $177.81, representing expected downside of approximately 28% to Friday's close. This includes 9 analysts suggesting a “Strong Buy,” 2 recommending a “Moderate Buy,” 15 advising a “Hold,” and 7 voting for a “Strong Sell."
Conclusion
So, to wrap it all up, Tesla could find itself in a uniquely sweet spot if the presumptive GOP nominee makes a comeback all the way to the White House. With Musk's growing ties to Trump and a potentially more relaxed regulatory environment, Tesla might just get the boost it needs to navigate its current challenges.
Despite skeptical analyst opinions, the unique political dynamics and Tesla's strong domestic presence could set the stage for some exciting times ahead. Keep an eye on the always unpredictable political scene, as well as Tesla's next quarterly earnings report on July 23 — both could be pivotal for the company's future.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
