Tesla Stock & Trump: Risks Galore

Tesla Stock Performance and Valuation - Tesla stock has rallied by over 45% since November 5th, 2024, with its market cap now standing at over $1.1 trillion [1] - Tesla trades at about $352 per share, or approximately 108x consensus 2025 earnings, which is considered a lofty multiple [1] - Tesla's stock returns were 50% in 2021, -65% in 2022, and 102% in 2023, with a 44% year-to-date return in 2024 [1] - Tesla's current market capitalization is more than the next 20 largest automakers combined, raising concerns about overvaluation [3] Regulatory and Political Influence - Elon Musk's strong rapport with President Trump has sparked hopes for regulatory shifts that could favor Tesla [1] - Trump has appointed Musk to lead a new advisory commission, DOGE, aimed at streamlining the federal government and improving efficiency [1] - There is a strong possibility that government subsidies for electric vehicles (EVs) will be reduced or eliminated under Trump, which could benefit Tesla as a low-cost producer [2] - Trump is expected to boost Tesla's self-driving business by potentially streamlining federal-level regulations for autonomous vehicle technology [6] Market Share and Competition - Tesla's ability to control costs and maintain profitability gives it a distinct edge over less efficient competitors in a more free market environment [2] - Tesla delivered under 2 million cars last year, while the total automotive market stood at roughly 90 million units [3] - The early adopter market for EVs appears to be saturating in countries such as the U.S., with buyers rediscovering hybrid vehicles, which saw a 31% increase in deliveries in Q2 2024 [3] - Chinese EV players have made compelling vehicles with cutting-edge technologies at competitive prices, posing a challenge to Tesla's international business [4] Product Lineup and Innovation - Tesla's product lineup is showing its age, with the Model S, first launched in 2012, only receiving incremental design updates [4] - The barriers to entry in the EV market are relatively low, leading to more new players challenging Tesla [4] - Tesla's autopilot faces strong competition from Alphabet's Waymo robo-taxi business, which may be worth trillions to Alphabet stock [6] - Chinese companies like Baidu have made significant strides in autonomous driving, with Baidu's RT6 autonomous taxi costing under $30,000 per unit [7] Financial Performance and Revenue Trends - Tesla's revenue is poised to grow by just about 3% per consensus estimates in 2024 [9] - Automotive gross margins stood at around 16% in the most recent quarter, down from about 29% in late 2021 [9] - Tesla's aggressive price cuts over the past year appear to have lost their initial impact as price competition grows fiercer [3] Trade Policies and Tax Cuts - Investors believe Trump could boost Tesla through higher tariffs on imported EVs and greater access to international markets [8] - Trump's focus on tax cuts for U.S.-based manufacturers could benefit Tesla, which does a bulk of its manufacturing in the U.S. [8]