With shares up by over 1,700% over the last decade, Tesla (TSLA -4.95%) has already minted its fair share of wealthy people -- including its famous CEO Elon Musk, the richest man in the world. The recent presidential election victory of Donald Trump seems to have unlocked another bull run. Let's dig deeper into how the new administration could influence Tesla's millionaire-maker potential.
The Trump effect
Tesla's CEO Elon Musk played an important role in Trump's 2024 presidential victory. In addition to stumping, the visionary billionaire committed an estimated $200 million to the campaign through his new super PAC, America PAC, which focuses on low-propensity voters. The market seems to be making a connection between Musk's support for Trump and Tesla's economic prospects.
At the time of this writing, the electric automaker has seen its shares rise around 40% since Trump's win, bringing its market cap to $1.1 trillion and adding $70 billion to Musk's personal fortune. But investors who are late to the party should ignore the hype and focus on the potential implications of a Trump presidency on Tesla's fundamentals.
The good news is that Trump has several generally pro-business policy proposals, such as reducing the corporate tax rate from 21% to 15%. However, these lower rates would only apply to companies that make their products in the U.S. It is unclear if Tesla would even quality because of its significant operations in the U.S. and China.
Trump's protectionist rhetoric could also run contrary to Tesla's plan to move more vehicle production to Mexico to lower production costs in the increasingly competitive electric vehicle (EV) industry. The future president's hawkish stance on China could also raise the risk of retaliation against Tesla and other American companies in this key market.
Pent-up demand for Tesla stock
While Trump's presidential victory may not deliver direct economic benefits to Tesla, it may have eased the growing perception of political persecution against the company and its CEO, which developed under the Biden administration. Alarm bells began to ring when Tesla was inexplicably snubbed from the 2021 EV Summit in Washington, D.C.
And in October, another Musk-led company, SpaceX, sued California regulators after members of the Coastal Commission cited the executive's political beliefs when denying its bid to launch more rockets in the state.
Investors may believe that under a Trump administration Tesla will be more free to explore new growth drivers like generative artificial intelligence and self-driving cars, which may require immense government oversight to make it to mass adoption. These efforts will be key to growing the company as its core EV business matures.
Image source: Getty Images.
Tesla's third-quarter results highlight the urgency to expand into these new businesses. Total revenue rose by a modest 8% year over year to $25.2 billion, with automotive sales rising just 2%.
Is Tesla still a millionaire-maker stock?
If we filter out the noise, Tesla is a relatively mature electric automaker that seems to have hit a plateau in its core EV business. Trump's presidential victory probably won't do much to change this situation. And with a forward price-to-earnings (P/E) multiple of 105, shares are extremely richly valued considering the fundamental situation.
That said, Tesla is not a typical company. Historically, its shares have enjoyed massive premiums based on the market's faith in Elon Musk and his ability to achieve the unexpected. A more friendly administration could give him the space to actualize his long-term vision.
While Tesla still looks capable of minting more millionaires, investors may want to wait for more progress on its self-driving tech before considering a position in the stock.
