Tesla’s Market Value Soars Despite Car-Selling Business Taking a Backseat
Elon Musk’s Political Prominence Takes Center Stage
Tesla Inc.’s shares have nearly doubled in value since the last earnings report, setting the stage for high expectations. However, the company’s car-selling business has become overshadowed by Elon Musk’s growing political influence.
Hopes for Fully Self-Driving Vehicles Drive Up Market Value
A significant portion of Tesla’s massive market value is attributed to hopes that the company will be among the first to develop and market fully self-driving vehicles. This expectation has been fueled by Donald Trump’s election victory, with investors betting that Musk’s close relationship with the US President will pave the way for the company’s success.
Investors Prepare for a Wild Ride
Trading in the options market suggests investors are bracing for a 7% move in either direction off Tesla’s fourth-quarter earnings report. This would be the stock’s smallest post-results swing since October 2022. According to David Wagner, portfolio manager at Aptus Capital Advisors, “The market is behaving as if Tesla’s results don’t matter, and that may catch investors flat-footed in case of a large shock.”
Tesla Shares Become a Vehicle for Betting on Musk
In many ways, Tesla shares have become a way for investors to wager on Musk himself, rather than the company. This has both advantages and risks. On one hand, the shares are no longer tied to mundane details of growth and profitability. On the other hand, Tesla is now vulnerable to the twists and turns of a potentially volatile relationship between Musk and the US President.
EV Tax Credits and Regulatory Credits at Risk
Tesla’s reliance on EV tax credits and regulatory credits could be at risk if the US administration decides to eliminate related subsidies and policies. According to Barclays analyst Dan Levy, about two-thirds of Tesla’s US sales, or 20% of its global sales, benefit from EV tax credits that encourage consumers to buy electric cars.
Fundamentals Take a Backseat to Narrative Command
“Fundamentals remain secondary versus the broader theme of narrative command for Tesla, which has gone into hyperdrive since the US Elections last November,” wrote Levy in a note to clients. “It’s important to note this move has very little to do with EVs, as the Election catalyst is objectively a negative for EVs.”
Pitfalls of Ascribing High Valuations to Future Potentials
The risks of ascribing high valuations to future potentials came into focus when the biggest US technology stocks nosedived on fears that Chinese artificial-intelligence startup DeepSeek could disrupt the current AI business model. According to Evercore ISI analyst Chris McNally, between $500 billion and $600 billion of Tesla’s current market capitalization is based on its EV and energy businesses, with the rest pinned on efforts toward self-driving cars and humanoid robots.
Tesla’s Core Business May Protect it from Disruption
Some analysts believe that the very nature of Tesla’s core business can protect it from a sudden DeepSeek-like shock. “Any company is subject to disruption, but since the auto manufacturing business has a much longer cycle than computer software/hardware, I think that Tesla’s vulnerabilities will occur a bit more slowly,” said Steve Sosnick, chief strategist at Interactive Brokers.
Traders Position for Earnings Report
A look into how traders are positioning for Tesla’s earnings report on Wednesday shows optimism continues to rule. Citigroup equity and derivatives trading strategist Vishal Vivek estimated that options market positioning was about “7 out of 10 bullish.” According to Adam Crisafulli, founder of market intelligence firm Vital Knowledge, “Musk can engineer a stock rally with just a few words on the conference call even if the fourth-quarter numbers themselves are bad.”
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