Tesla CEO Elon Musk’s ‘all-in’ gamble to get Donald Trump elected president has proven so successful that a veritable chasm has opened up between his EV manufacturer and the rest of the auto industry.
As conventional carmakers trade at rock-bottom prices amid a broad industry malaise brought on by China’s economic slowdown and growing fears of Trump tariffs, Tesla’s stock continues to soar, creating one of the biggest valuation gaps it’s ever seen.
On Friday, Tesla reclaimed its place in the elite club of companies worth more than $1 trillion after adding a full third in market capitalization since Election Day less than a week ago. The last time Tesla was worth this amount of money it was April 2022, Musk had just revealed his $44 billion plan to acquire Twitter.
Relative to its peers, Tesla is now worth more than the next 15 largest carmakers combined—from Toyota and General Motors all the way down to Jeep’s parent company Stellantis and Hyundai.
Toss in lower ranked names like Kia and Renault, respectively worth $26.6 billion and $12.6 billion, and Tesla is still is still ahead, only drawing even once the $8.8 billion from Japan’s Nissan is thrown into the mix.
Pretty soon more names can be added to the list, as Tesla is indicated to open nearly 7% higher on Monday, raising its market cap to approximately $1.1 trillion.
No more Democrat 'lawfare discount' weighing on stock
Last week’s gains also reflect market optimism that Trump will deliver on his planned cut to the corporate tax rate from 21% down to 15% for U.S. manufacturers like Tesla.
Musk might even get his wish for federal legislation enabling autonomous vehicles, replacing the confusing patchwork quilt of state laws. This could accelerate Tesla’s plans to roll out unsupervised full-self driving.
And while some economists fear Trump’s love for tariffs could hurt business with GM’s Chevrolet Equinox and Ford Mustang Mach-E—both EVs competing with Tesla—imported from Mexico, that is not likely to slow Tesla down.
Musk manufactures all Tesla models sold in the U.S. either at its California plant in Fremont or in Austin (its battery cells, a major input by value, are however still predominantly imported from Asia).
David Sacks, like Musk a member of the PayPal mafia who supported Trump, had a simpler explanation for why the stock soared after the election. Musk's influence in Trump’s second administration would defang regulatory enforcement by agencies like the traffic safety authority NHTSA and put a swift end to investigations into Musk’s business dealings.
“That was the lawfare discount — the stock market pricing in the viciousness of Democrats,” Sacks posted on Friday.
Biggest gap between sentiment and fundamentals since October 2021
Tesla's stock premium compared to its peers is also cavernous.
At present, Yahoo Finance lists Tesla’s likely 2025 earnings per share at $3.24, according to the consensus estimate of 34 analysts polled.
That means investors are paying 100 times earnings for each share, versus 5.3 times for a General Motors. Generally a 100 earnings multiple is the point at which even tech stocks tends to lose the tether to their underlying fundamentals.
Take Nvidia, for example: the stock that drove S&P 500 gains this year — it trades at 36.1 times next year’s forecast earnings. Other megacap trillion dollar companies like Amazon (33.9x) Microsoft (28.3x), Apple (27.3x), Meta (23.3x) and Alphabet (19.9x) currently are valued at multiples that are even lower.
That could suggest that Tesla’s earnings estimates are lagging behind the market and have yet to catch up with investor sentiment. But 34 analysts just recently revised them upwards over the past 30 days, mainly to reflect Musk’s bullish October prediction that Tesla car sales are set to jump by 20% to 30% next year on the back of new models including lower priced versions of the Cybertruck.
As a result, Future Fund money manager Gary Black warned the spread between Tesla’s sentiment-driven share price and the average Wall Street price target based on the fundamental business metrics has reached its highest level since October 2021—a month before the stock hit its all-time peak.
“Absent earnings increases, analysts can’t just raise Tesla price targets without economic justification,” he argued on Monday.
