Tesla stock (TSLA) fell on Monday after a strong recent rally, as one Wall Street bank said “animal spirits” were driving up the stock price beyond “fundamental changes” in the company.
Joseph Spak of UBS noted that Tesla stock has risen about 40% since the election, adding more than $350 million in market capitalization. While some of President-elect Donald Trump’s policy proposals could benefit Tesla, there are also downsides to the policy that could hurt fundamentals more than the theoretical upside that would have pushed the stock higher. There are several.
“The rise in Tesla stock is primarily driven by animal spirits and momentum (which has happened many times in TSLA’s history),” Spack wrote.
Tesla shares are down about 1% in midday trading after Spark and UBS raised their price target on the company from $197 to $226 and reiterated their unusual “sell” ratings.
Investors pushed Tesla shares to multi-year highs following Trump’s election victory, largely due to CEO Elon Musk’s full support of Trump. It’s in the background. In return, Mr. Trump unofficially kept Mr. Musk in his inner circle, allowed him to sit in on policy meetings and named him chairman of the Council on Government Efficiency.
Trump has also said Musk’s presence has improved his views on electric vehicles, but a report from his transition team says the federal EV tax credit could be in jeopardy.
Eliminating the tax credit could hurt Tesla’s competitors more than Tesla itself, but the math isn’t that simple. “Removal of the consumer tax credit is not an absolute positive for US EV (and TSLA) demand. TSLA may have new models/updates coming up that could help However, we have seen that pricing actions (other than tax credits) only stabilize demand; therefore, further pricing actions may be necessary if the credits run out. ” Spack wrote.
Another bullish outcome for Tesla from Trump’s victory is a more friendly regulatory environment, especially for Tesla’s robotaxi deployment.
There is a view that easing regulatory “hurdles” is a positive for Tesla’s robotaxi service, but that opinion is undermined by the fact that there are actually no onerous federal self-driving vehicle regulations to “ease”. Soothing, Spack writes. It will be dealt with on a state-by-state basis.
In fact, the bigger challenge for robotaxis may be the technology itself.
“Regulatory changes do not immediately resolve the unsupervised (fully autonomous) technology challenge, nor do they change the timeline for resolution,” Spack wrote. “While we continue to believe that FSD is improving, this product is not ready for large-scale deployment of robotaxis.”
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