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

The recent surge in Tesla's stock price, amounting to $570 billion, highlights the significant impact of political dynamics on the electric vehicle (EV) market. Tesla finds itself navigating through an environment fraught with challenges, particularly with the Trump administration hinting at cuts to federal subsidies for electric vehicles. This potential change could increase the costs associated with EVs, placing them at a disadvantage compared to traditional gasoline-powered vehicles.

According to Barclays analyst Dan Levy, about two-thirds of Tesla's sales in the U.S., which account for roughly 20% of its global sales, currently benefit from these tax credits. While less than favorable for Tesla's competitors, this subsidy reduction may ultimately strengthen Tesla's position by further entrenching its market dominance.

However, the speculation surrounding eased regulations is often unpredictable and can be time-consuming to realize. Even with the possibility of relaxed regulations, there is no solid evidence that Tesla's Cybercab technology is ready for public use. If the regulations shift before Tesla's systems are sufficiently developed, it may inadvertently benefit competitors like Alphabet Inc.’s Waymo, which focuses on self-driving technology.

Theories Behind Tesla's Stock Surge

Wall Street is rife with theories about the remarkable rise in Tesla's stock price. Investors are keen to speculate on Elon Musk's increasing influence in Washington and the favorable conditions for the company among retail traders. Following Trump's electoral victory, Tesla may be poised for significant long-term benefits.

According to Cole Wilcox, a portfolio manager at Longboard Asset Management, those who have doubted Musk and Tesla in the past have often been proven wrong. Investors and stakeholders are optimistic that there are no substantial barriers preventing Musk from realizing his ambitious goals.

The correlation between Tesla and Bitcoin is notable, as both have become prominent symbols in the post-election market rally, emboldened by renewed investor enthusiasm. This resurgence mirrors the explosive growth seen in 2020 and 2021, during which Tesla’s stock surged more than 740% in 2020 alone, with an additional gain through November 2021.

Nonetheless, as market enthusiasm shifted due to rising inflation fears and increasing interest rates, Tesla's stock also faced challenges, including an unexpected slowdown in sales and diminishing profit margins. The company recently touched a new record for the first time since 2021 after Trump’s election.

The Options Market's Reflection

The options market underscores Tesla's popularity among traders. In the past month, Tesla has emerged as one of the top equity options by notional volume in the U.S., coming in fifth after major indices like the S&P 500 and Nasdaq 100. According to Rocky Fishman of Asym 500, there is a clear and significant interest in betting on Tesla's upward potential.

Tom Keen, an options trader with Piper Sandler, noted a strong push for upside among traders. The successful ownership of call options, betting on future price increases of Tesla stock, has encouraged continued activity in this market.

Given the prevailing trends and investor behavior, Tesla’s shares could continue on their upward trajectory. Investors are accustomed to rapid stock price fluctuations, supported by Musk’s pivotal role within the Trump administration, which raises speculation about Tesla's future directions.

As expressed by DataTrek's Colas, the primary public market representation of Musk's influence is through Tesla, identified by its ticker symbol TSLA. This draw has captivated global investors, often overshadowing traditional valuation considerations.

The Evolving Landscape Post Trump’s Election

The Federal Reserve, under Jerome Powell, is poised for a challenging environment as it combats rising prices while dealing with the implications of Trump's election on the broader economy. The ramifications of these political changes and the Federal Reserve's responses could play a significant role in shaping the future outlook for Tesla and the EV industry broadly.

Tesla, Musk, Stocks