Tesla’s Trump

Tesla (NASDAQ:TSLA) stock has had a wild run over recent weeks, with the stock jumping 50% in less than a month to finally regain the $1-trillion market cap figure it was last at in early 2022.

After all, with Trump’s second term at the Oval Office now confirmed, Tesla will be a big winner over the coming years. Tesla CEO Elon Musk played a pivotal role in Trump’s 2024 campaign, making substantial financial contributions, actively campaigning for Trump, and leveraging his social media platform, X, to boost support. With Trump’s return to the White House, we believe Tesla could find itself in a very favorable position under the new administration and this, in turn, could push Tesla stock to new heights – $1,000 may not be too far off. Here’s how it might happen.

Tesla is already a growth powerhouse, focused on high-potential sectors like electric vehicles, AI, and renewable energy. Under Trump, with tax cuts, looser monetary policy, less regulation, and more favorable trade policies, the company could unlock its full potential. Think of the possibilities specific to Tesla: potential direct funding for new factories to expand domestic manufacturing, tariffs that protect Tesla from foreign competition, and less regulatory overhead for Tesla’s AI business and moonshot projects. With Trump in office, even more creative policies and support structures that could directly or indirectly benefit Tesla may be on the table. Other big tech stocks could also gain from Trump presidency. Should you Buy, Sell, Or Hold Amazon Stock?

The performance of TSLA stock with respect to the index over the last 3-year period has been quite volatile. Returns for the stock were 50% in 2021, -65% in 2022, and 102% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Despite the wild stock fluctuations, here’s why we think Tesla is set to thrive as Trump enters the Oval Office for his second term.

Tesla’s Edge Sans Subsidies

Government subsidies for electric vehicles (EVs) are very likely to be reduced or eliminated under Trump, but Tesla’s superior efficiency could provide a significant advantage. While the current $7,500 tax credit has benefited Tesla, the company is better positioned than its competitors to thrive without such support. Rivian, for instance, lost $1.4 billion per quarter over the past two quarters and could struggle in a subsidy-free market. Other U.S. automakers like GM and Ford, which sold only 22,000 EVs in Q2 2024 out of nearly 700,000 vehicles, may also face difficulties. They lack the economies of scale and cost efficiency that Tesla has achieved.

Tesla is one of the lowest-cost producers in the EV industry, on account of its vertically integrated operations, which span from battery production to software development. The company’s Gigafactories boost economies of scale, driving down costs, and Tesla’s minimal spending on advertising further enhances its margins. In Q3 2024, Tesla posted a 7% adjusted profit margin despite industry-wide challenges, and in 2022, when the EV market was more favorable, the company achieved an impressive 17% margin. Without subsidies, Tesla’s ability to control costs and maintain profitability gives it a distinct edge over less efficient competitors, potentially enabling it to thrive in a more free-market environment.

Trump’s Trade Moves Benefit Tesla

Trump’s trade policies could further boost Tesla’s edge over competitors. The U.S. already has a 100% tariff on Chinese EVs, and Trump has suggested raising it to 200% on Chinese EVs built in Mexico and imported into the U.S. This would create major obstacles for Chinese automakers trying to enter the U.S. market. While Trump has invited them to build factories in the U.S., it’s unlikely they will, due to heavy investments in China and an unpredictable U.S. regulatory environment. As tariffs rise, Tesla’s domestic production and cost efficiency will give it a strong advantage over both its U.S. and foreign competitors. Tesla could also potentially enter more new international markets as Trump pushes for the removal of tariffs on American goods and focuses on more symmetric trade policies.

Tesla Renewables May Gain From Manufacturing And Infra Push

So yes, Trump has been a proponent of boosting hydrocarbon production, but we do not see this as impacting the renewable energy market. In fact, Tesla’s renewable energy business – which is largely driven by storage solutions – could get a nice boost. How is that? Trump has been a big proponent of tax cuts, particularly for U.S.-based manufacturers and this could benefit Tesla which produces a bulk of its energy storage systems and batteries domestically. At this juncture, renewables adoption is all about reducing costs and building scale and this is exactly what could happen.

There could also be more favorable regulations to speed up renewable energy projects, while demand could also increase if infrastructure investments pick up and energy policy focusing on grid modernization ramps up. Tesla could be the biggest beneficiary of this, as it has a competitive edge in energy density, cost, and software integration for its batteries, and its significant investment in manufacturing capacity strengthens its position. Even without government support, Tesla’s energy business should be able to capitalize on the growing renewable energy market. A closer look at Tesla’s fast-growing Clean Energy business.

Less Red Tape For AI & Futuristic Projects

Additionally, regulations that encourage the growth of AI and autonomous vehicle technology may be shaped to Tesla’s advantage. Trump’s focus on deregulation may reduce red tape around autonomous vehicle testing and deployment, accelerating Tesla’s development of Full Self-Driving technology. Tesla’s FSD users have already logged over 1.3 billion cumulative miles, a crucial metric for autonomous vehicles, as more miles provide valuable data to improve machine learning algorithms. With fewer regulatory hurdles, Tesla could speed up the rollout of its self-driving features, solidifying its leadership in the autonomous vehicle market. Over the last few years, Tesla autopilot accidents have triggered investigations by the NHTSA, with lapses in autopilot “judgment” identified. While these remain serious issues that must be addressed, Trump’s policies could help Tesla speed up improvements in FSD technology.

The Math Behind A ~$1,000 Tesla Stock

Let’s get down to the numbers on how Tesla stock can rise over 3x from its current levels. Revenues could pick up from levels around $120 billion in 2025 to about $400 billion by 2029, driven by potentially higher EV shipments, entries into new international markets, and stronger renewable energy sales. That’s a growth rate of about 35% per year, roughly in line with the company’s average growth rate between the years 2018 and 2023.

While Tesla’s net margins stood at a peak of about 15% in 2023, there is a real possibility that they could rise further to say about 25%. How? Tax breaks, more software sales, and better manufacturing efficiency and economies of scale. If that pans out, Tesla could rake in about $100 billion in net profits. Now Tesla’s current P/E multiple stands at about 75x, based on projected 2025 earnings and Wednesday’s pre-market stock price of $280 per share. If we assume that the multiple shrinks to a more modest 30x by 2029, this could translate into a market cap of about $3 trillion for Tesla. Assuming a share count of about 3.2 billion, that implies a stock price of more than $930 per share.

While investors have their fingers crossed for a soft landing by the U.S. economy following rate cuts, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

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