The last few months have been exciting for Tesla and its shareholders. But, the upcoming year has everyone wondering whether Tesla (NASDAQ:TSLA) can sustain the current share price growth. It’s already up 73% year-to-date after a very rocky start to the year.
Tesla CEO Elon Musk and President-Elect Donald Trump have enjoyed a fruitful, public-facing relationship after Musk played a significant role in Trump’s reelection. Even Peter Thiel, who once called Musk a “fraud” when they worked at PayPal, credits Musk for helping Silicon Valley leaders support Trump openly. Musk devoted more than a quarter-billion dollars to Trump’s campaign, not to mention hundreds of hours appearing at rallies and sitting for interviews.
You could interpret Musk’s support as a genuine belief in the president-elect’s leadership qualities and policy ideas as well as a way for him to influence the most powerful politician in the world to benefit Tesla. For example, is his support for ending EV credits a way to stifle competition now that he’s ridden the Tesla wave to a trillion dollar plus market capi?
Trump Could Encourage Policies That Benefit Tesla
Musk is famously strategic in building out Tesla’s dominance. For example, opening up Tesla’s manufacturing methods to competitors was perceived as a negative initially but, in practice, they only worked in the context of gigafactories, which only Musk had mastered. Only at scale could the costs be kept in check, and Musk made a chessboard play that ultimately led to GM losing $10 billion.
Now Musk is almost inevitably planning that President-Elect Trump will support policies that benefit Tesla’s autonomous driving technologies. Specifically, Musk is likely to have his eyes on policies that help introduce Tesla’s Cybercab to the mainstream.
These policies would largely come from the Department of Transportation. Trump has nominated former congressman Sean Duffy as Secretary of Transportation, but his nomination will require a Senate confirmation.
Duffy spent much of his political career siding against industry regulations, although he did introduce legislation in 2018 that would make it easier for President Trump to enforce tariffs. This makes him look like a Trump loyalist, but would he support autonomous driving policies without strong evidence of their safety?
Furthermore, would Trump risk supporting autonomous driving before companies can prove that it works as intended? If the president supports a dangerous technology that goes belly up from a safety front, he could face tremendous backlash that would undermine much of his authority.
Trump Might Not Support the EV Industry
Even if President Trump wants Tesla to succeed, he hasn’t supported the EV industry overall. He says he will work to eliminate the $7,500 federal credit that helps make EVs more affordable for Americans. Getting rid of that credit would make it harder for consumers to purchase Tesla vehicles. But this might be another chess move by Musk who knows his company has the cash flows to thrive while competitors are still reliant on subsidies to scale.
Trump is also an avid supporter of the fossil fuel industry. He wants to expand drilling and limit offshore wind farms. These positions won’t necessarily prevent Tesla from succeeding. Plenty of Tesla owners charge their cars with electricity that comes from fossil fuels.
But there is a bit of dissonance there that could limit Tesla’s growth. What if the Trump Administration decides that it doesn’t want to use federal dollars to build high-speed charging stations connected to renewable energy sources? That could intensify the “range anxiety” that prevents so many Americans from buying electric vehicles.
President Trump Might Not Have as Much Influence as Musk Wishes
The U.S. President obviously has tremendous power and influence, but the person holding the office doesn’t get to create and enforce many rules independently. For example, Congress decides whether it spends money on infrastructure upgrades that might benefit Tesla. With that said, Trump has the backing of Congress so the path may be smoother than when he first ran.
More importantly, the federal government doesn’t control whether local governments allow new technologies on their streets. The CyberCab’s success or failure probably won’t come from the federal government. Tesla will need to convince major cities that autonomous taxis can operate safely on their streets.
Before Musk gets CyberCabs on the streets of major cities, he will need to court leaders in diverse places like San Francisco, New York City, Los Angeles, Dallas, and Miami. Some of those metros are more likely to take the risk than others, so Musk has a lot of work ahead of him even if Trump supports his goals.
Tesla Has a Rally-and-Bust History
Tesla stock has been over the $400 threshold before, although this is the first time it has passed $450. On November 11, 2021, Tesla reached $407… and then started falling over the next three months until it traded for about $270 per share. After a brief rally, it fell further over the next year to $113 at the beginning of 2023. Until very recently, it hasn’t been able to overcome that $270 mark for more than a day at a time.
All of this points to Tesla’s “rally-and-bust” history. Humanoid robots, autonomous cybercabs, or new policy will get the market excited about Tesla’s prospects. If Musk’s vision for a robotic future comes to fruition, Tesla is likely massively undervalued.
Will Tesla Go Up or Down in 2025?
In 2025, the average analyst forecast predicts Tesla share price will fall to $283.88 per share, though the most optimistic analyst sees Tesla rising to $528 per share.
The company has clearly been in a rally period, but the history of share price booms and busts leaves shareholders on edge. New buyers need to know that the company has an erratic history that should make it unattractive to anyone avoiding risk.
Things to consider before making a decision. Tesla’s revenues grew 8% year-over-year in Q3, but it didn’t make as much as it did in Q2. Tesla has a 200 price-earnings ratio, which makes it extremely expensive compared to other Magnificent Seven stocks. Tesla seems excited about its services division, which has shown reliable growth this year, but investors remain focused on the EVs at the business’s core.
Buying Tesla shares now looks quite risky, given the company’s boom-and-bust history. It might make more sense to wait a few months to see if the price comes down a bit.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
