Tesla TSLA shares rose roughly 28% this past week on news that Donald Trump was elected to become the next US president. The largest implication we see for EVs and lithium demand is a potential change to the EV subsidies that were created in the Inflation Reduction Act of 2022. Should this occur, we would expect to see lower near-term US EV sales, slightly weighing on lithium demand.
Tesla CEO Elon Musk has campaigned for Trump and may serve as an advisor to Trump during his second term as president. While Tesla could benefit during a Trump presidency, we’re maintaining our $210 fair value estimate and narrow-moat rating. At current prices, we view Tesla shares as overvalued, with the stock trading more than 30% above our fair value estimate.
While Tesla and its competitors may lose a $7,500 subsidy likely leading to lower sales, Tesla is better positioned to withstand the change as it is already profitable. Additionally, we think Trump would continue to enact tariffs to effectively keep lower-priced Chinese EVs out of the US market. This positions Tesla to maintain its market leadership position in the US.
Additionally, Musk may be able to advise on US federal autonomous driving regulations. Tesla is investing heavily in its autonomous driving software and aims to produce fully autonomous vehicles in the next several years. Even if the technology is ready, regulations will be a hurdle for market growth as the technology would need to be approved at the federal and state levels. As a result, Musk may be able to advise on policies that would speed up the regulatory review process at the US federal level, more quickly enabling the autonomous driving technologies to be implemented.
Tesla Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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