Since Trump's victory, Tesla's stock price has risen 31%, and its market value has surged by $250 billion. This astonishing increase has prompted some Wall Street people to issue warnings, because Tesla's current stock price is 28% higher than the average analyst target price, the highest level since the post-epidemic tech stock boom in 2021.
The gap reflects the challenge analysts face in assessing how Trump will affect Tesla. Musk's support for Trump landed him a job leading government efficiency, and a potentially friendlier regulatory environment could be a boon to his businesses. However, even long-time Tesla investors have a hard time rationalizing Tesla's recent gains in the short term, especially given Trump's skepticism about electric vehicles.
Adam Sarhan, founder and CEO of 50 Park Investments, said he remains optimistic about Tesla's long-term prospects, but noted that
"The market's reaction to Tesla after Trump's victory was explosive, and while a Trump administration may indeed bring some positives, the current gains look a bit overheated in the short term."
Tesla’s valuation has been elusive, with analysts offering widely varying price targets as a debate continues over whether the company should be viewed as a car company, a technology company or a unique blend of the two. In addition, factors such as Musk’s personal brand and potential products such as self-driving taxis that have yet to hit the market also add to the difficulty.
The post-election rally, coupled with better-than-expected third-quarter results, has further increased Tesla's already high valuation. As of Tuesday's close, Tesla's price-to-earnings ratio was as high as 104 times future earnings, far higher than the median multiple of traditional automakers and the average of 32 times for the "Big 7 Tech".
With Trump as president, the political and economic complexities he brings are also creating new challenges for Tesla's valuation. The possibility that the Biden administration's policies supporting electric vehicles could be overturned by Trump is one of the potential risks that analysts are concerned about. At the macro level, some of Trump's policies could lead to rising inflation, which would be a potential obstacle. In the past few years, high inflation has caused consumers to reduce large expenditures, and car sales have declined accordingly.
On the other hand, Deutsche Bank analyst Edison Yu said that some of Trump's possible policies may be beneficial to Tesla, such as simplifying federal regulations for self-driving cars and supporting the humanoid robot technology that Tesla is developing. Tesla's leading position in the electric vehicle field may be further expanded.
"If (the inflation reduction bill) is repealed or amended, or additional tariffs are imposed on imported parts, Tesla's relative competitive position will be further enhanced," Yu said. But he also admitted that quantifying how the Trump administration will help Tesla "may be more of an art than a science at the moment."
Morgan Stanley analyst Adam Jonas expressed similar views. "It is indeed difficult to quantify the impact on Tesla due to Musk's relationship with the Trump administration," he wrote in a report to clients this week, "but it is clear that the pace of change in Musk's influence, whether real or just perceived, is accelerating."
Both analysts hold a "buy" rating on Tesla shares and maintained their respective price targets in their latest reports: Yu's target is $295, while Jonas's target is $310.
"This rally looks unsustainable, even if you believe in the long-term growth story of the stock," said David Wagner, portfolio manager at Aptus Capital Advisors and a long-time Tesla investor. "This politicized meme-ification of Tesla's stock price is illogical." (Note: "Meme stocks" refer to stocks of companies that have gained fanatical popularity among retail investors on social media.)
Article forwarded from: Jinshi Data