Tesla: Stronger Than Ever Under A Trump Administration

Summary:

• Trump’s victory benefits Tesla with potential federal AV regulations, expediting robotaxi approval and strengthening its competitive edge despite short-term EV tax credit removal challenges.
• Tesla’s profitable EV operations make it resilient against the potential removal of the $7,500 EV tax credit, unlike competitors who rely heavily on subsidies.
• The S-curve thesis for EV adoption remains intact, with price parity expected by 2027, ensuring long-term growth despite short-term hurdles.
• Despite Tesla’s strong position, I maintain a Hold rating due to its high valuation, preferring to invest when sentiment cools down.

Trump winning the election has brought new opportunities for Tesla, Inc. (NASDAQ:TSLA) and the autonomous vehicle (AV) industry, as there have been a couple of key developments recently that make the company look stronger than ever.

Last week, there was news that Trump may remove the $7,500 EV tax credit, which could hurt Tesla slightly in the short term but benefit it in the long term, according to Elon Musk. More recently, a report noted that Trump’s transition team wants to prioritize making a federal framework to regulate self-driving vehicles through the U.S. Transport Department. This is crucial for Tesla, as it will help the company get regulatory approval faster for its robotaxis. It’s clear that Tesla’s competitive advantage has become even stronger with Trump in office.

In a recent article before the election, I outlined how Tesla is set to have its “iPhone moment” in the coming years, stating, “Electric vehicles are likely at or entering the early acceleration phase of the S-curve, which means that EV adoption can accelerate from here.” If the tax credit gets removed, the transition from the slow adoption phase to the acceleration phase of EVs might take a bit longer, but I think the trend will still be the same once pricing parity is reached.

Overall, while Tesla faces some challenges, the company looks like it’s in a great position now, with Trump set to become the president soon. Consistent with my past articles, though, I’d rather wait for the stock to become more “hated” or have a lower valuation before considering a Buy. There’s obviously a lot of optimism surrounding the stock right now. As a result, I’m reiterating a Hold rating on TSLA.

Potential $7,500 EV Tax Credit Removal Comes With Pros And Cons

The $7,500 federal EV tax credit has undoubtedly helped speed up EV adoption by making EVs cheaper. However, reports note that Trump wants to remove this credit early into his administration. You may think that Elon Musk would be against this, but he actually supports it. In July, he posted on X, saying, “Take away the subsidies. It will only help Tesla. Also, remove subsidies from all industries!”

But why did he say this if it will make Tesla less affordable and hurt sales? It’s because Tesla is the only company with profitable EV operations right now. Other automakers, whether they’re legacy automakers or pure EV companies, are taking heavy losses on EV sales. As stated in my previous Tesla article, Ford Motor Company’s (F) “model e (EV division) segment reported EBIT of -$1.2 billion for the quarter and is expected to see a full-year EBIT of -$5 billion.”

Therefore, the loss of the EV credit would be a big blow to legacy companies like Ford and General Motors Company (GM) and newer players like Rivian Automotive, Inc. (RIVN). These firms are still scaling their EV operations and rely much more heavily on the tax credit to make their cars more competitively priced (Rivian not as much because it generally targets more affluent customers, so the tax credit is less notable there).

Nonetheless, if the EV credit is removed, fewer people will buy their EVs, which will lead to even deeper losses. Meanwhile, since Tesla has profitable EV operations, it can take a hit. Additionally, Tesla’s EVs are already competitively priced. Per newsweek.com, “[Tesla’s] most affordable car, the Model 3, is more than $14,000 cheaper than the average EV, according to data from Kelly Blue Book.”

So yes, a potential removal of the EV credit can hurt Tesla in the short term because it will reduce overall demand for EVs, but it should hurt other EV makers more, which puts it in a stronger position relative to the competition.

S-Curve Thesis Still Intact

In my last article, I argued that EV adoption will follow an S-curve. I then provided this image of the S-curve for smartphones to show how it looks, saying that EV adoption in the U.S. is likely at or entering the early acceleration phase.

A removal of the tax credit will drive more people toward gas cars (pun intended) in the short term. However, price parity for EVs and ICE cars is expected by 2027, according to Gartner. It’s important to note that this expectation is due to “innovations like centralised vehicle architecture which significantly lower production costs and assembly time.” Nothing about government credits was mentioned, at least not in the articles I’ve read.

So, if price parity is expected by 2027, even without including government incentives, then the long-term S-curve thesis remains intact.

The Robotaxi Opportunity Just Became Easier For Tesla

I discussed the robotaxi opportunity in my recent Tesla article, so if you want more details, I suggest checking that out, but I will give an update here. As stated above, the Trump administration wants to prioritize creating a federal framework for AV regulation, which could significantly help with Tesla’s robotaxi goals. That’s why the stock gained 5.6% following the news. Currently, companies have to follow laws that vary by state. This has slowed down progress and increased costs for firms working on this technology.

Under Trump’s administration, the U.S. Department of Transportation is expected to make these regulations simpler by making it a federal decision. In short, Tesla will be able to get robotaxi approval much faster this way.

The Cybercab is expected to enter production in 2026. If Tesla gets federal approval, it could quickly disrupt the transportation industry just as Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT) did with traditional taxis. This is especially true since the cost per mile is expected to be lower than ride-hailing options due to the lack of a human driver and a less complex car (the cybercab will have no steering wheel or gas pedals, for example). Tesla’s use of camera-based technology rather than more expensive LiDAR technology (which is what Waymo uses) also makes its AVs cheaper.

Elon Musk’s influence in the White House will help as well. Trump recently confirmed that Musk will co-lead the Department of Government Efficiency (of course, the acronym is DOGE) under the Trump administration. Thus, Musk has an opportunity to push for policies that align with the visions of his companies.

Elon Musk’s $44 billion acquisition of X (formerly Twitter) helped with this. At first, many claimed that he overpaid for Twitter. But now, it’s more clear that his investment is paying off. Musk’s owning X helped him gain more influence, which helped him use his platform to lead people toward voting for Trump. Now, he’s co-leading the DOGE and is friends with the president-elect. I think it’s safe to say that it’s not a good idea to bet against Elon Musk, even if some of his actions make less sense in the short term at times.

AI And Autonomy: A $1T Opportunity For Tesla?

It’s hard to truly know how big the opportunity is for Tesla, but this quote from a Seeking Alpha news article caught my attention.

Wedbush Securities estimates the AI and autonomous opportunity is worth $1 trillion alone for Tesla, Inc. ((TSLA) and expects that under a Trump White House, the key initiatives will now get fast-tracked as the federal regulatory spiderweb that the electric vehicle giant has encountered over the past few years around FSD/autonomous clears significantly under a new Trump era.

Wedbush may or may not be right about the $1T opportunity, but I do agree with the regulatory fast-tracking part and the fact that the opportunity is huge in general. Wedbush has a $400 price target on the stock, which implies 18% upside potential.

Some Risks To Consider

While Tesla is well-positioned in both the EV and AV industries, the company/stock doesn’t come without its challenges and risks.

First, its FSD technology faces scrutiny, especially because its camera-based system is considered less safe compared to LiDAR technology. The camera-based system may struggle in low-visibility conditions, such as fog.

Currently, the National Highway Traffic Safety Administration (NHTSA) is investigating four crashes related to FSD, one of which caused a fatality. Investigations like this can hurt the company’s ability to gain regulatory approval.

Still, it will likely be easier to gain approval with Trump in office. Plus, as I mentioned in my last article, Waymo has already done a lot of the regulatory dirty work for Tesla, validating the technology and making it easier for future regulatory approvals.

Overall, I think Tesla can gain approval eventually. I’ve seen videos of people using FSD without touching the steering wheel, and it looks pretty good. Even if there are some problems now with FSD, I wouldn’t want to bet against Tesla’s ability to rapidly improve its technology.

Another challenge Tesla faces is the removal of the EV tax credit, which I already discussed. However, I think it’s more of a short-term issue, so I’m not worried about it.

The valuation is another risk. Let’s talk about it a bit in this next section.

I’m Waiting For The Valuation To Come Down

In my last article, I wrote this about Tesla’s valuation:

General Motors Company (GM) trades at a non-GAAP P/E ratio of 5.3x. Meanwhile, TSLA has a non-GAAP P/E ratio of 109.38x based on $2.40 in TTM EPS and a share price of $262.51.

If Tesla was valued at 5.3x non-GAAP earnings, with $8.338 billion in TTM non-GAAP net income, its market cap would be about $44.191 billion. However, the market cap is $842.673 billion. Therefore, it’s worth about $798.48 billion more than it would be if it were a legacy automaker. I know this isn’t a perfect example, but it’s to give an idea of how much is priced in (hundreds of billions worth).

It’s not as if Tesla is some sort of unknown opportunity. Based on the valuation, the market clearly knows it’s not just a car company. Thus, while I think Tesla as a business can have its iPhone moment, I’m not sure that the stock will have its Apple Inc. (AAPL) moment in terms of share price appreciation after that happens. A good amount of that has been priced in already. Don’t get me wrong. The stock can still rise, just maybe not meteorically.

I’d prefer to invest in Tesla when it’s more hated. This happens every so often. Just in April, it was at nearly half its current price.

That article was only published about 3 weeks ago. Now, the market cap is $1.087 trillion. I guess I should have predicted that Trump would win, and Tesla stock would rise. Nevertheless, that disconnect in valuation I was talking about if Tesla was valued as a legacy automaker has now surpassed $1 trillion. Funnily enough, that’s the AI and autonomous opportunity Wedbush sees. So, maybe that is fully priced in already or getting close to it.

Either way, I’m a patient investor. I don’t have to buy the next big thing at 83x its expected 2026 EPS if I don’t know for sure that the price is right. I’m more than happy to stay on the sidelines for now.

The Takeaway

Tesla is uniquely positioned to thrive in the EV and AV industries, especially with Trump’s recent victory. The potential removal of the $7,500 EV tax credit could hurt the company in the short term by affecting EV demand, but it strengthens the company’s competitive edge compared to its rivals, as they don’t operate profitable EV divisions and rely more heavily on subsidies to offset losses.

Meanwhile, Trump’s focus on creating a federal framework for autonomous vehicles could quickly accelerate the regulatory approval process for robotaxis. By simplifying regulations, Tesla’s Cybercabs could disrupt the transportation industry sooner than expected. Moreover, Tesla’s lower-cost camera-based system, combined with a simplified vehicle design and autonomy, could make its robotaxis far more affordable than traditional ride-hailing options, helping it gain market share in this industry.

While there are risks, such as FSD scrutiny, Tesla has historically been able to overcome adversity. Also, the S-curve of EV adoption may be delayed slightly if the tax credit gets removed, but potential price parity with ICE cars by 2027 keeps the S-curve thesis intact.

However, with the valuation already reflecting lots of optimism at a market cap of nearly $1.1 trillion, I remain cautious. Even though Tesla looks stronger than ever, I prefer to wait for the sentiment to cool down a bit, reiterating my Hold rating, but the future looks great for Tesla.

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