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Tesla’s (TSLA) surprise stock rally, which pushed its market valuation back over the $1tn mark, is being driven by optimism among investors that Donald Trump’s return to the White House might benefit Elon Musk’s companies, particularly Tesla. But will it?
Trump’s victory could mean regulatory and trade policies favouring US-based companies over international competitors, which would shield Tesla from the threat of cheaper Chinese electric vehicles (EVs) flooding the market.
Analysts remain divided, though, on whether this optimism is well-founded or if Tesla’s rally will prove short-lived given the company’s existing challenges, high valuation, and potential risks from economic uncertainty.
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Optimism for deregulation
For Tesla, which has long capitalised on tax incentives and EV subsidies to drive growth, Trump’s re-election is perceived as a double-edged sword. On one hand, Trump’s potential to ease regulatory pressures and limit foreign competition could strengthen Tesla’s position in the US.
Dan Ives of Wedbush Securities highlighted that Tesla could benefit from “less regulation” if Trump shifts policy focus away from green energy subsidies, allowing Tesla to operate with fewer restrictions.
“Tesla has the scale and scope that is unmatched in the EV industry,” Ives said, adding that reduced subsidies for Chinese EV makers could “push away cheaper Chinese EV players” and give Tesla a stronger footing in the US market by cutting competition from brands like BYD (1211.HK) and Nio (NIO).
Susannah Streeter, head of money and markets at Hargreaves Lansdown, also sees a potential upside in Tesla’s Trump alignment. With Musk openly backing Trump financially, Streeter argues that Tesla’s head start in brand recognition, charging infrastructure, and manufacturing scale might make the loss of EV tax credits more manageable compared to other, smaller EV startups.
“[Reducing tax credits] is set to hurt Tesla’s rivals a lot more,” Streeter told Yahoo Finance UK. “Tesla has already got such a head start, with its brand recognition and huge charging network, that it’ll be just a glancing blow.”
David Morrison, senior market analyst at Trade Nation, told Yahoo Finance UK: “Progress here could depend just as much on a favourable regulatory framework as on the technical aspects.
"Trump is a big fan of Elon Musk. Not only has Musk done some incredible work with SpaceX, quickly and efficiently putting its reusable rockets and cheap satellites into service. But Musk has also come out as a big backer of Trump, having contributed, in some ways controversially, millions of dollars to his re-election campaign.
"Trump has promised to deregulate and cut taxes, while also applying tariffs to Chinese imports, with the highest reserved for Chinese-made EVs. That should be a major help for Tesla as such tariffs will effectively get rid of Chinese competition.
"All-in-all, together with the possible synergies between Musk’s X/Twitter and The Donald’s ‘Truth Social’, then the odds favour Musk adding to his considerable riches."
Challenges around EV tax credits
Donald Trump’s return to the White House might benefit Elon Musk’s companies, particularly Tesla, according to some analysts. ·REUTERS / Reuters
Despite potential benefits in the form of deregulation and limited competition, some analysts caution that the elimination of the $7,500 federal EV tax credit could curtail Tesla’s growth in the domestic market. This credit has played a significant role in making EVs more affordable to a broader consumer base, and its removal could lead to demand erosion for Tesla, whose models remain at a premium price point.
Kate Leaman, chief market analyst at AvaTrade, told Yahoo Finance UK that “Tesla's prospect's under a second Trump term are actually a mixed bag".
While Tesla’s brand loyalty is robust, Leaman pointed out that the loss of these incentives could hinder Tesla’s growth as “high upfront costs are still a barrier for a lot of people.” With EV credits no longer offsetting these costs, Tesla’s ability to appeal to mainstream consumers could be affected.
The potential for new tariffs on Chinese imports presents another complication for Tesla, which has manufacturing plants in Shanghai and relies on a range of parts and materials sourced from China. Should Trump impose higher tariffs on Chinese goods, Tesla’s supply chain could experience price increases, potentially squeezing profit margins or necessitating price adjustments.
As Russ Mould, investment director at AJ Bell, told Yahoo Finance UK: “Were China to retaliate upon the imposition of tariffs, such action could take many forms, but a withdrawal of key materials from supply chains and bans, tacit or otherwise, on buying overseas product could undo some of the benefits to Tesla’s competitive position in its domestic market.”
Mixed views on Tesla’s current valuation
Tesla’s valuation surge has sparked debate among Wall Street analysts ·Reuters / Reuters
Tesla’s valuation surge has sparked significant debate among Wall Street analysts. While some see Tesla’s trillion-dollar valuation as justified given its dominance in the EV market and potential in autonomous driving, others warn that the valuation may be inflated by short-term speculative interest following Trump’s victory.
Neil Wilson, chief markets analyst at Finalto, voiced scepticism about Tesla’s high price-to-earnings ratio, which is currently around 102 times forward earnings, one of the highest in the industry. “Tesla at $1tn is worth about the rest of the auto sector combined… which just doesn’t make sense to me,” Wilson told Yahoo Finance UK.
In addition to valuation concerns, AJ Bell’s Mould highlighted risks that could arise from broader economic factors, such as potential inflation and a wider economic downturn. He pointed out that the bond markets have shown signs of nervousness, as rising 10-year US Treasury yields may indicate investor concerns about inflationary pressures.
"An unexpected wider equity market dislocation, for whatever reason, could also be a challenge for a stock that trades on around 100 times forecast earnings for 2025," Mould explained.
He said that a downturn in consumer spending or renewed inflation could hurt demand for Tesla’s premium-priced products, making its current valuation difficult to sustain.
Musk’s influence and potential regulatory leverage
Musk’s relationship with Trump is likely to be a significant factor in Tesla’s trajectory under a Trump administration.
Charu Chanana, chief investment strategist at Saxo, said that Musk’s close advisory role could put Tesla in a favourable position to secure contracts in the EV space but would also bring about more scrutiny.
Musk’s alignment with Trump might lead to advantageous conditions for Tesla’s autonomous vehicle (AV) initiatives.
Currently, AV approval occurs at the state level, posing regulatory hurdles for Tesla’s Full Self-Driving (FSD) technology. Musk has expressed a desire for a federal approval process, which could allow Tesla to streamline its AV rollout nationwide if Trump supports such a shift.
Leaman from AvaTrade said that with Trump in office, Musk’s push for FDS technology could see fewer regulatory constraints, allowing Tesla to bring new features to market more rapidly.
“If regulations loosen, it might allow Tesla to get FSD features to market faster, which has been a big selling point for Musk and a major growth area for the company,” Leaman noted.
The role of AI and self-driving in Tesla’s future
Musk’s alignment with Trump might lead to advantageous conditions for Tesla’s autonomous vehicle initiatives. ·Reuters / Reuters
Tesla’s self-driving technology and AI ambitions remain a core part of its growth narrative, and many investors are banking on these advancements to justify Tesla’s lofty valuation.
However, some analysts argue that the technology is not yet sufficiently developed to drive sustained value creation.
Finalto’s Wilson warned: “You have the AI story which ought to be a big positive for Tesla, but its FSD doesn’t really work — it’s not there yet anyway.”
Cautious outlook on Tesla’s future
Given the uncertainties surrounding Tesla’s regulatory environment, growth trajectory, and high valuation, analysts remain cautious about the stock’s potential for further gains. This raises concerns that Tesla’s stock price could see significant fluctuations if the expected regulatory benefits under Trump do not materialise or if Tesla’s growth proves slower than anticipated.
Moreover, Tesla’s reliance on government subsidies and tax credits raises questions about the sustainability of its growth if Trump’s policies reduce these incentives.
Wilson expressed doubts that Tesla could maintain its current valuation under a Trump administration, especially if Trump cuts back on EV credits and other green energy subsidies. “If Trump gets rid of the $7,00 EV credits I fail to see how Tesla remains profitable,” Wilson said.
Tesla’s ascent into the trillion-dollar club has been met with both excitement and scepticism from investors and analysts. Optimists see a Trump presidency as an opportunity for Tesla to capitalise on reduced competition, deregulation, and Musk’s potentially expanded influence in shaping favourable policies.
Pessimists, however, warn that Tesla’s reliance on tax incentives, its high valuation, and unresolved regulatory and technical challenges around self-driving technology make the stock vulnerable to economic downturns and policy changes.
Naeem Aslam, chief investment officer at Zaye Capital Markets, told Yahoo Finance UK: “Tesla's stock value depends on its future growth prospects, and under Trump's business-friendly climate, the stock market might stay positive for fast-growing firms like Tesla.
"Yet outside issues such as trade disputes and shifts in interest rates could shake up Tesla's stock price, which often responds more to market feelings than short-term profits. In the big picture, Tesla's long-term success will still rely more on Elon Musk's guidance and ideas than on any government in power, though a second Trump term could bring both hurdles and chances for Tesla to grow.”
As it stands, Tesla’s recent rally reflects a speculative faith in Musk’s ability to leverage Trump’s administration to benefit his companies. Whether that optimism will translate into sustained growth or prove fleeting remains to be seen.
