You don’t need to look any further than the mercurial CEO of Tesla, Elon Musk, to prove the maxim that “the rich get richer.” The world’s second-richest individual has seen his wealth grow by a whopping $70 billion in just a week since Donald Trump was re-elected to the presidency, thanks in large part to his ownership of 411 million shares of Tesla.
The stock soared roughly 39% in the week after the 2024 presidential election, as investors view Trump as much more Tesla-friendly than his defeated rival, Vice President Kamala Harris. But with the stock making such a dramatic move in just a few days, should you jump in and ride the wave, or is it too late? Here are some of the most important factors to consider.
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One of the most interesting developments during the 2024 presidential campaign was the cozying up of fellow billionaires Donald Trump and Elon Musk. But this was no mere political friendship. Musk literally put his money where his mouth was, spending money to sign up right-leaning swing-state voters and even tossing millions of dollars directly to voters signing his American PAC petitions.
In spite of any personal feelings Musk might have for Trump, it’s clear that his strong support for the former president was intended to pay off for his various companies, including Tesla. There are currently 19 ongoing federal investigations and lawsuits against Tesla, X and SpaceX, and many if not all of those are likely to magically go away under the next Trump presidency.
In fact, Trump has appointed Musk head of a brand-new government department, “The Department of Government Efficiency,” which he has said will “dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures and restructure federal agencies.”
With these potential federal land mines out of the way, Tesla can potentially operate in a more profitable manner.
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Beyond the political cronyism, however, there are some analysts who paint a bullish portrait of Tesla simply on its fundamentals. Adam Jonas of Morgan Stanley, for example, envisions a potential scenario in which Tesla shares can reach $500 per share, about 50% above current levels.
Recently, Jonas notes that Tesla posted better-than-expected earnings of 72 cents per share while profit margins jumped by two full percentage points. Musk himself added that he sees the potential for a 20% to 30% growth rate in 2025, barring any global calamities.
Looking forward, however, Jonas sees a number of major contributors to Tesla’s bottom line, including the following:
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Licensing of the company’s driver-assistance technology
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Broader network and mobility services
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Battery, energy and insurance divisions
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Faster adoption rate of the company’s AI-powered Dojo supercomputer
Jonas says the company can hit its lofty target prices if it reaches 8 million in EV sales annually, 400 gigawatt-hours of energy storage and collective contributions from services, software and full self-driving technology.
Clearly, Tesla didn’t become 40% more valuable intrinsically in a matter of days. But the stock market is a forward-looking mechanism, and it may actually be true that the future Tesla is worth more than the stock bump it has recently received.
But plenty of caveats are attached to the bull case for Tesla. Analysts at Kiplinger caution investors to be wary of the stock after its huge runup, in spite of the fact that Tesla has dramatically outperformed the stock market as a whole over the past five years. The well-regarded financial publication notes that the stock has an extraordinarily high five-year beta of 2.3, meaning that it’s more than twice as volatile as the overall market, and it has a maximum all-time drawdown of 73%. Put it all together and even if you’re a Tesla bull, you should expect violent swings in the company’s stock price.
Tesla’s valuation has always been a cause for concern, and the company’s metrics seem even more out of whack after its stratospheric post-election rise. But if the company is free to operate as it chooses for at least the next four years while its CEO is the head of “government efficiency,” Tesla may continue to surprise to the upside. Investors should make sure their risk tolerance allows them to invest in the stock, however, as the only certainty is that shares will remain exceedingly volatile.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Tesla’s Stock Boom: Should You Ride the Wave After the Trump Election Bump?