Elon Musk’s Political Gamble: The Stakes for Tesla’s Future in the Coming Election
In terms of financial stakes, few stand to lose as much in the upcoming election as Tesla (NASDAQ: TSLA) CEO Elon Musk.
Musk’s Unlikely Alliance with Trump
Musk has emerged as one of the most prominent figures supporting former President Donald Trump, joining him at rallies, including Trump’s recent “closing argument” event in New York City. This partnership is curious, considering Trump’s history of criticizing electric vehicles and renewable energy. Yet, Musk seems to favor the Republican promise of reduced regulations and finds common ground with Trump on issues like “free speech.” Following his exclusion from Biden’s early EV discussions, Musk shifted from support for Democrats to a stronger alignment with Republicans.
The Autonomy Bet
As Tesla enhances its focus on autonomous technology, it recently showcased its “Cybercab,” highlighting Musk’s belief that autonomy is crucial for the company’s future. He argues that Tesla is in the best position to lead the shift to autonomous vehicles (AVs). However, this transition relies heavily on federal approval from agencies such as the National Highway Traffic Safety Administration (NHTSA) and state regulators.
Musk emphasized his desire for a federal regulation body for AVs during Tesla’s earnings call, contrasting this with state-level governance. The Cybercab is set to launch first in states like Texas and California, as safety remains a top concern for regulators and the public. Companies like Uber Technologies and General Motors have faced setbacks due to AV accidents, which brings further scrutiny to Musk’s ambitions.
Potential Challenges from a Democratic Administration
Currently, the NHTSA prohibits vehicles like the Cybercab from operating without traditional driver controls, and any changes to this rule will likely occur gradually. Tesla might seek an exemption to operate 2,500 Cybercabs annually, but that’s a far cry from Musk’s vision of millions on the road each year.
If Vice President Kamala Harris wins the presidency, it could send mixed signals for Tesla. Given Musk’s past criticisms aimed at Democrats, including Harris, there could be a risk of regulators adopting a more cautious stance towards Tesla’s plans. Generally, CEOs of major publicly traded companies tend to avoid taking strong political stances to maintain favor with whichever party emerges victorious.
It’s important to note that most Democrats, including Harris, haven’t directly targeted Musk or Tesla due to his political views. While critiques may arise from certain candidates or commentators, Harris asserts that her campaign seeks to represent all Americans, acknowledging differing opinions about her leadership.
Financial Implications for Tesla
Tesla operates as a low-margin automaker but is valued like a high-tech disruptor due to its leadership in electric vehicles and Musk’s optimistic forecasts about autonomy. However, a failure to achieve the promised transition could severely impact Tesla’s stock, which is currently trading at a price-to-earnings ratio above 100, even as revenue growth is projected to stagnate this year.
Musk estimates production growth of 20% to 30% for the following year, but delays in reaching autonomy could drive the stock down significantly, particularly after a recent surge following its third-quarter earnings report. Investors witnessed this volatility firsthand when the stock fell 9% after the Oct. 10 “We, Robot” event, where expectations for updates on the Cybercab and Tesla’s autonomous robot were not met.
Future Under a Harris Administration
The political support Musk has shown for Trump may not have lasting effects in a potential Harris administration. However, if Trump loses, it represents a distinct risk for Tesla’s stock. While a victory for Harris may not immediately impact Tesla, uncertainties remain regarding regulatory support for the company’s path to autonomy.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
