Is Tesla Still a Potential Million-Dollar Investment Option?
With a staggering increase of over 1,700% in stock price over the past decade, Tesla (TSLA 2.10%) has turned many into wealthy individuals, including its renowned CEO Elon Musk, now the wealthiest person globally. The recent triumph of Donald Trump in the presidential election seems to have kicked off another prosperous period. Let's delve into how this new administration could potentially amplify Tesla's millionaire-making prowess.
The Trump influence
Elon Musk played a significant role in Trump's 2024 election victory. Beyond campaigning, the visionary billionaire reportedly invested an estimated $200 million in support via his new super PAC, America PAC, which primarily targets low-engagement voters. The financial market seems to correlate Musk's backing of Trump with Tesla's financial prospects.
Since Trump's victory, Tesla's shares have seen a surge of about 40%, boosting its market cap to a colossal $1.1 trillion and swelling Musk's fortune by an additional $70 billion. However, latecomers to the party should disregard the hype and focus on the prospective consequences of a Trump presidency on Tesla's foundational aspects.
The positive news is that Trump advocates several generally pro-business policies, such as reducing the corporate tax rate from 21% to 15%. However, these reduced rates would only apply to businesses that manufacture their products domestically. It remains unclear whether Tesla would meet this requirement due to its substantial operations in the U.S. and China.
Trump's protectionist rhetoric could conflict with Tesla's plan to shift more vehicle production to Mexico, aiming to lower production costs within the intensely competitive electric vehicle (EV) sector. Additionally, Trump's tough stance on China could heighten the risk of retaliation against Tesla and other U.S. companies operating in this crucial market.
Demand for Tesla stock
Although Trump's victory may not directly benefit Tesla economically, it may alleviate the increase in perceived political hostility towards the company and its CEO under the Biden administration. This hostility reached a crescendo when Tesla was inexplicably excluded from the 2021 EV Summit in Washington D.C.
Furthermore, in October, another Musk-led enterprise, SpaceX, initiated a lawsuit against California regulators after the Coastal Commission made its approval contingent upon Musk's political beliefs.
Investors may speculate that a Trump administration would provide Tesla more freedom to explore promising new growth opportunities like generative artificial intelligence and self-driving vehicles, which may require substantial government oversight to reach widespread adoption. The pursuit of these advancements will be essential for the company's expansion as its core EV business progresses.
Tesla's third-quarter results underscore the urgency to branch into these new areas. Total revenue saw a modest 8% increase year-over-year to $25.2 billion, with automobile sales rising only 2%.
Is Tesla still a millionaire-making stock?
If we discount the excessive chatter, Tesla is a relatively established electric automaker that appears to have reached a plateau in its core EV business. Trump's presidency likely won't considerably modify this scenario. And with a forward price-to-earnings (P/E) ratio of 105, shares are exorbitantly valued given the current situation.
However, it's important to remember that Tesla isn't a typical corporation. Historically, its shares have enjoyed substantial premiums due to market confidence in Elon Musk and his track record of delivering the unexpected. A more accommodating administration may provide Musk room to actualize his long-term vision.
While Tesla still seems capable of generating more millionaires, investors may prefer to wait for more progress in self-driving technology before considering investing in the stock.
In light of Elon Musk's significant financial support to Trump's 2024 election campaign, some investors speculate that the Trump administration could create a more favorable business environment for Tesla, potentially leading to further growth and wealth creation for shareholders.
Given Trump's pro-business policies and Musk's influence, there's a possibility that Tesla could gain more freedom to explore new growth opportunities in areas like generative artificial intelligence and self-driving vehicles, which may require government oversight for widespread adoption.
