Elon Musk's Tesla: A Half-Trillion Dollar Gamble on Trump's Regulatory Relief
For staunch Elon Musk supporters, Tesla (TSLA) has become the embodiment of a monumental $500 billion wager. This staggering surge in market valuation since the presidential election has defied gravity, even amidst a lackluster financial report that would have sent shockwaves through other automotive companies.
Investors are banking on President Trump's administration to bolster Tesla rather than hinder it. His plans to slash Washington regulations and leverage tariffs as a bargaining chip with key trading partners have ignited optimism among TSLA shareholders. Less regulation? A boon. Trade war? A minor inconvenience.
"It's going to be a golden era for Tesla and Musk," exclaimed Dan Ives, financial analyst at Wedbush Securities. "This is the most bullish I've ever heard Musk."
However, investing in Tesla has always been a risky endeavor. The odds were stacked against Musk's ambition to establish a thriving electric car company, let alone transform it into the world's most valuable automaker and himself into the world's wealthiest individual. But this latest bet appears particularly audacious.
Musk envisions Tesla's true potential lies in the future, with an army of Tesla robots and autonomous, driverless vehicles. He has set ambitious targets, promising to launch robotaxi services in Austin, Texas by June and nationwide by the end of next year.
According to the prevailing narrative, Trump's support for Musk will accelerate these endeavors. The President has granted Musk an office in the White House and appointed him head of the new Department of Government Efficiency, tasked with reducing the size of the federal government.
Trump's newly appointed Transportation Secretary, Sean Duffy, has echoed these sentiments. He has pledged to ease excessive regulations on automakers and establish a unified set of federal rules for self-driving technology, replacing a patchwork of state-by-state regulations that Musk has criticized as stifling innovation.
Crucially, Trump has softened his stance towards China, a significant market for Tesla. Although he has imposed additional tariffs on the country, they are less severe than the 60% initially threatened during his campaign. Nevertheless, Trump's decision to impose tariffs on Canada and Mexico, in addition to China, is expected to impact Tesla, as it sources parts from around the globe.
Trump has also vowed to eliminate the $7,500 federal tax rebate for electric vehicle purchases. Moreover, he plans to lower emission standards, which could potentially hurt Tesla's revenue stream from selling "regulatory credits" to automakers that exceed pollution limits.
The fate of the Trump administration's potential investigations into Tesla, particularly its Full Self-Driving technology, remains uncertain. In October, the National Traffic Highway Safety Administration launched an investigation following reports of crashes in low-visibility conditions, including one fatal pedestrian incident.
Transportation Secretary Duffy has vowed to allow these investigations to proceed impartially, resisting political pressure to go easy on the "first buddy" of the President.
Musk will require all the regulatory relief and other favorable policies from Trump that he can muster. Tesla recently reported a decline in sales for 2024, a first in over a decade, as competitors like BMW, Volkswagen, and China's BYD gain market share with their own competitive electric vehicles. Despite a disappointing financial report for the last quarter of 2024, Tesla's stock price has continued to rise.
"Factors that would negatively impact other automakers," observes Morningstar analyst Seth Goldstein, "don't seem to affect Tesla."
Beyond its business performance, Tesla shareholders must also keep an eye on Musk's personal conduct. His recent foray into politics has raised concerns among investors. In Europe, a major market for Tesla, Musk has endorsed the far-right Alternative for Germany and labeled British Prime Minister Keir Starmer as an "evil tyrant" leading a "tyrannical police state."
Musk's controversial behavior has drawn widespread backlash, including projections of him making a Nazi salute on his Tesla factory in Berlin and an effigy of him being hung upside down in Milan, the same square where fascist dictator Benito Mussolini was publicly executed.
"How many Tesla buyers agree with Musk's political views?" questions Felipe Munoz, senior analyst at Jato Dynamics. "Alienating potential customers doesn't make sense."
Musk also risks alienating regulators in Europe, who hold the key to approving the use of Full Self-Driving technology there. If investors lose faith in Musk, the potential downside is enormous. Tesla's stock surge since the election alone exceeds the annual economic output of over 160 countries. The company's market capitalization has soared to approximately $1.3 trillion, surpassing the combined worth of General Motors, BMW, Ford, Ferrari, Porsche, and a dozen other major automakers.
Musk believes Tesla's stock is vastly undervalued. "I see a path for Tesla being the most valuable company in the world — by far, not even close," he said, doubling down on his earlier statement. "There is a path where Tesla is worth more than the next five companies combined." This would require surpassing the likes of Microsoft, Apple, and Nvidia. Tesla currently ranks as the seventh most valuable company in the S&P 500.
Analyst Ives maintains the bullish sentiment, predicting that Tesla's stock can only continue to rise. "The bet for the ages that Musk made was on Trump," he said. "Musk is going to have a massive impact on deregulation in Washington — and that is worth a trillion dollars."