Tesla has re-entered the exclusive trillion-dollar club, thanks to a meteoric rise in its share price, driven largely by investors’ hopes that Donald Trump’s return to the U.S. presidency might boost Tesla’s fortunes. Closing up by 8.2% at R6,221.40 on Friday, Tesla’s market value surged past the R20 trillion mark, placing it again among the elite S&P 500 companies with this valuation status.
A Year of Ups and Downs for Tesla
This year has seen Tesla’s stock undergo a dramatic reversal. The company’s shares had plunged by 43% by April, reaching their lowest point in years. However, since then, Tesla’s stock has staged a major comeback, growing by 29% over the year. Investors were encouraged by Tesla’s recent third-quarter earnings report, which beat expectations and provided positive guidance for the coming quarters. The rally accelerated in late October, with shares rising 18% in a single month.
Yet, the most significant boost came post-election, with the stock soaring another 28% following Trump’s win. Elon Musk’s visible support for Trump’s campaign is likely contributing to investor optimism. But analysts caution that this momentum may be more symbolic than substantive.
Investor Sentiment Soars, But Experts Advise Caution
According to Barclays analyst Dan Levy, Tesla’s strong stock performance following Trump’s win may be more about Musk’s prominent role in the Trump campaign than any clear benefit to Tesla’s future business. “This is a reminder of Tesla’s legacy as the original ‘meme stock,’ rallying in line with other speculative assets like cryptocurrency,” Levy wrote in a note to investors.
However, some analysts are hesitant about the long-term impact of a Trump presidency on Tesla’s operations. Trump has expressed skepticism towards electric vehicles (EVs), and if his administration reduces EV tax incentives, Tesla’s U.S. sales could take a hit. Yet, despite this uncertainty, investors are placing large, bullish bets on Tesla’s future, with call option volumes reaching a record high. More than 4.7 million call options traded on Friday alone, marking a surge in demand for Tesla shares.
Challenges Ahead for Tesla’s AI Ambitions
Tesla’s status among the so-called “Magnificent Seven” tech giants may be at risk due to its declining earnings projections and unsteady progress in artificial intelligence (AI). Tesla’s current price-to-earnings ratio of 102 times forward earnings significantly exceeds that of competitors like Nvidia, which trades at a multiple of roughly 39. Critics argue that Tesla’s AI ambitions, particularly in self-driving technology, remain uncertain after a recent unveiling of its autonomous vehicle failed to meet market expectations.
David Mazza, CEO of Roundhill Financial, noted that while Trump’s win might offer Tesla some symbolic gains, tangible benefits are less apparent. He pointed out, “The stock’s surge reflects the recurring ‘Tesla dream premium’ — a trend where speculative hope fuels valuation, even when fundamentals are lacking.”
Can Tesla Continue Its Rally?
While Tesla’s resurgence is impressive, some Wall Street experts caution that sustaining this momentum may be challenging. With its expected profit drop of 23% this year, Tesla could remain the weakest performer among its peers, such as Apple, Microsoft, and Nvidia. Investors are eyeing a potential “catch-up rally,” hoping for further gains to close the year. However, questions about Tesla’s fundamental performance, including its profitability and AI potential, leave some investors wary of placing long-term bets.
As the year progresses, Tesla may continue to see volatile trading, particularly given the renewed interest in speculative “meme stocks” and fluctuating global attitudes towards EV policies. Tesla’s rejoining of the trillion-dollar club underscores its enduring appeal, but only time will tell if this rally can hold.
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