Tesla Investors Continue to Profit From the Trump Trade

Key Points

• Tesla stock is up 6.6% after news that the incoming Trump administration will prioritize a federal regulatory framework for autonomous vehicles.
• Adding to the bullish sentiment is the belief that Trump will repeal the $7,500 EV tax credit.
• TSLA stock is a proxy for Elon Musk, but at least one analyst just raised their price target.  

Tesla Inc. NASDAQ: TSLA stock has been up 56.2% since Donald Trump was elected president of the United States. But the recent move of 6.6% the week of November 18, 2024, has investors thinking that the stock may be going to $400 or even higher. 

News broke that the Trump administration is planning to prioritize the creation of a regulatory framework for fully self-driving vehicles (i.e., autonomous vehicles) at the federal level as opposed to leaving it up to individual states. 

The significance to Tesla is that a federal framework could provide Tesla with an easier path for rolling out its autonomous Cybercabs. For existing Tesla owners, this would create a process to sell software across state lines.  

Tesla’s Drive to an Autonomous Future 

It’s no secret to TSLA shareholders that Tesla founder and chief executive officer (CEO) Elon Musk has made autonomous technology and AI development a cornerstone of Tesla’s business strategy moving forward. In theory, this news makes Musk’s vision much more likely to become a reality. 

But investors have wondered how long that might take, particularly for a stock that’s trading at 171x forward earnings. Four years may be long enough. A Trump administration is likely to make the standards for autonomous driving less restrictive. Tesla’s full self-driving (FSD) technology is currently at Level 2 and would likely only have to achieve Level 4 before it could get regulatory approval for its Cybercabs. 

Musk Keeps on Winning 

Another bit of news that’s helping to prop up TSLA stock is that the incoming Trump administration is widely expected to cancel the Biden administration’s $7,500 EV tax credit. This was put in place to encourage electric vehicle (EV) adoption in the United States. However, ending the subsidy was one of Trump’s core campaign pledges. 

Here again, Tesla would likely be a beneficiary because of the company’s position in the U.S. EV market. That is, it’s the market share leader and is one of the only companies that is profitable. This puts the company in a position to produce EVs at a lower cost, which would negate the current subsidy.  

Politics Make Strange Bedfellows 

Some critics suggest that recent successes may be tied to Elon Musk’s endorsement of Trump’s campaign. Musk, previously popular among the political left, has drawn attention for his evolving views on topics like free speech.

You can’t buy shares in a person, but at least some of the bullish sentiment in TSLA stock since the election is investors using Tesla as a proxy for their belief in what the next four years will mean for Tesla to make good on the idea that it’s more than a car company and should be valued on par with other technology stocks. It is, but that’s not showing up in the financials yet.  

Buy the Rumor, Sell the News 

Since closing at a price of around $347 on November 18, Tesla stock has sold off to around $329 but has recovered much of that loss. That was to be expected as investors digested the rumor and realized that the payoff to any of this week’s news is still several years away.  

Analysts have been raising their price targets for TSLA stock since the company’s earnings report in October. However, it wasn’t until the latest news that one analyst, Dan Ives of Wedbush, stuck his neck out and is now calling for Tesla stock to climb to $400. That would be 16% higher than its price as of this writing. It’s also notably a 73% gain from the consensus price of the analyst forecasts on MarketBeat.  

In the final analysis, an investment in Tesla at this moment is an investment by proxy in Elon Musk. Musk’s star may never shine brighter, but like all stars, it will fade...in time. Tesla has always been a heavily traded stock, and that’s likely to continue. Whether the Musk factor is worth paying 171x forward earnings for TSLA stock as an investment is a question only you can answer.