Elon Musk’s Trump Trade Makes Tesla A Winner With $570 Billion Rally

Tesla has seen a significant surge in its stock value, driven by various factors including changes in the political landscape. With the election of Donald Trump, there's been a considerable movement in the electric vehicle (EV) market, generating a rally worth $570 billion for the company. This growth has raised questions about the inherent risks and challenges that Tesla might face in the near future.

Challenges Ahead

Despite the rally, Tesla is not free from challenges. The Trump administration is looking to cut federal subsidies for electric vehicles. This could lead to higher prices for Tesla’s offerings, making them less competitive against traditional gas-powered cars. According to Barclays analyst Dan Levy, around two-thirds of Tesla's sales in the United States, which constitutes about 20% of its global sales, rely on these tax credits. While this move may impact Tesla, it is anticipated to have a more detrimental effect on smaller domestic competitors. This could ultimately strengthen Tesla's market position.

Regulatory Landscape

Efforts to ease regulations for the EV market may take time and could be risky. Even if such changes occur, there is uncertainty about the readiness of Tesla’s Cybercab technology. Some experts believe that relaxing regulatory standards could inadvertently benefit Alphabet Inc.'s Waymo, Tesla's main rival in the robotaxi sector. Thomas Thornton, founder of Hedge Fund Telemetry, points out that regulatory hurdles may not be the primary concern holding Tesla back from achieving self-driving technology milestones.

The Musk Factor

Wall Street has been abuzz with theories regarding the dramatic rise in Tesla's stock price. Many investors are placing their bets on Elon Musk’s increasing influence in Washington, which could prove beneficial for the company. The enthusiasm among retail investors is further propelling the stock. Cole Wilcox, a portfolio manager at Longboard Asset Management, notes that those who have previously doubted Musk and Tesla have often been proven wrong. With Musk’s new role, the potential for transformational benefits for Tesla appears bright.

Comparisons to Previous Rallies

The current rally mirrors the explosive growth seen during 2020 and 2021. Back then, Tesla's stock soared by over 740% and achieved further gains through late 2021. These earlier surges were supported by significant sales and profit growth amidst a favorable outlook for EV demand. However, as inflation concerns and rising interest rates cooled the tech market in 2021, Tesla's stock faced a sharp decline. Warnings of a slowdown in EV sales and tightening profit margins added to the challenges, but the stock recently reclaimed heights following Trump’s election.

Market Dynamics

In the options market, Tesla has become a favorite asset for derivatives traders. According to Rocky Fishman, founder of Asym 500, Tesla ranks as the fifth-largest equity options position in the U.S. based on notional volume. Traders are showing a strong appetite for upside, and as long as this trend continues, Tesla's stock may continue its upward trajectory. Investors have become accustomed to rapid rallies, especially with Musk's significant influence now intertwined with the Trump administration.

Conclusion

The attention on Tesla can be attributed to its unique position as the only public market avenue directly linked to Elon Musk. This places the company at the center of interest for global investors, regardless of traditional valuation measures. As the dynamic between Musk and the Trump administration unfolds, many are left wondering about the potential ramifications for Tesla's future.

Tesla, Musk, Trump