Tesla’s Fate Tied (Too Closely) To Trump’s?

Yes, Donald Trump wants Tesla (NASDAQ:TSLA) CEO Elon Musk to help him be the American President – again!

But wait – what if Trump loses? It happened in 2020 and can happen again. Below we lay out the case for how this can translate into Tesla stock losing 90% or almost all of its value, falling below $10, and possibly bankruptcy. This is in contrast to a meaningful upside Tesla could see in a Trump presidency. Musk’s Trump Card: Will Tesla Be Boosted Or Totaled?

Indeed this broad range reflects a simple fact: while Tesla has transformed the auto business, it is a volatile stock. Not very different from the contrast Musk himself represents – combining ridiculous unpredictability with brilliance. In fact, returns for the stock were 50% in 2021, -65% in 2022, and 102% in 2023. On the other hand, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Despite the wild stock fluctuations, Tesla is set to thrive, even in less favorable regulatory environments.

So how can Trump’s loss hurt Tesla?

Tesla’s weakest spot is easy to see: it’s the safety of Tesla’s autopilot self-driving system. Without autopilot – as Musk has himself argued – Tesla is worth a lot less. Probably less than GM or Ford, who sell many more vehicles than Tesla but who have a current market value less than 10% of Tesla’s. The thing is, safety is about perception and trust. 

Safety is also about regulation

In the event Harris wins, the National Highway Traffic Safety Administration (NHTSA) can easily be encouraged by the new administration to use a more stringent – or even an outright unfavorable – lens when it comes to evaluating Tesla autopilot.

Over the past many years, Tesla fatalities have triggered investigations by the NHTSA on several occasions, and autopilot “judgment” lapses and errors have already been found. This is not the kind of thing that goes away from memory easily – and nor should it. With a motivated administration – this suspicion, the question itself: “Is Tesla safe?” – can do enough harm. Never mind the answer – which can take years, if not longer – to emerge, the seed of doubt can occupy the news cycle – each week, week after week. And with Tesla’s autopilot finding a ready contender in Alphabet’s Waymo, the question that will follow is “Is Waymo owner Alphabet safer?“

Sales will be hurt. New buyers want a cool futuristic vehicle – but not at a risk to their lives. Growth will plummet. Here’s the sequence of events that’s could likely unfold: With growth down, Musk will be left distracted and explaining. Musk will react, and declare war, but that won’t make the question – Is Tesla safe – go away.

Long-term crash superiority data versus humans may not come overnight. As pressure builds and Tesla’s stock drops, the board might push Musk to the brink – could even force resignation. The fact that Musk has interests across SpaceX, Neuralink, and other businesses, will likely mean that he may decide to focus elsewhere.  If Musk gives in and resigns, we’re not sure if there’s a floor to how low Tesla can go. There is a chance – though small – of a distress buyout being needed at that point. 

Is this likely?

Before you dismiss this possibility, do note that a mere five years ago Tesla was worth 1/10th of what it is today. Tesla carries great upside – but also bears risk unique to Tesla because of Musk, and his current relationship with the Trump administration. 

So, what can be done?

There are a couple of things. For starters, it would help if Musk was more thoughtful about his support. Sure, support Trump. But don’t disparage Harris. Say nothing bad. That should be easy – right? In fact, Tesla has benefited a fair bit from the policies of the current Democratic administration including the $7,500 tax credit for U.S.-made EVs and the removal of the eligibility cap of 200,000 vehicles per manufacturer. This way, the company can continue to thrive despite the political climate. 

Coming to the core issue of safety, the data relating to Tesla accidents remain proprietary, making it difficult for researchers and the public at large to assess the true risks of Tesla’s self-driving software. To address these issues, Tesla could improve transparency by publicly sharing anonymized crash data that can be used to study the company’s safety performance, while also providing more granular safety metrics beyond the current “Miles Driven Per Accident” and fire data it presently reports.

While investors have their fingers crossed for a soft landing by the U.S. economy following rate cuts, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

[1] Returns as of 10/22/2024
[2] Cumulative total returns since the end of 2016

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