Image source: Getty Images
Tesla (NASDAQ:TSLA) stock doesn’t look overly appealing at first glance. The stock trades at ridiculously high earnings multiples having risen 88% over the past six months. Looking back, the stock’s meteoric rise may have seem unlikely given the industry-topping valuation it possessed half a year ago. However, everything changed when Elon Musk’s ally Donald Trump was re-elected to the presidency.
So £5,000 invested six months ago would now be worth £9,400, plus a little extra given the depreciation of the pound over the period. That’s an incredibly strong investment in anybody’s book.
Why did Tesla gain on a Trump win?
Tesla’s stock surged following Trump’s election victory, with shares soaring more than 14% on the day after. This rally was driven by several factors. Investors anticipate that Tesla and Musk will benefit from Trump’s return to the White House, given his vocal support for the candidate during the campaign.
The removal of electric vehicle (EV) subsidies could be one advantage for Tesla due to its dominant market position, while smaller competitors might struggle. However, it’s not clear how else Tesla will benefit from Musk’s ties and position within the new administration. Tesla’s Chinese peers already face hefty tariffs and Musk’s company produces its vehicles around the world.
Crazy valuation
As always, sentiment’s key. And seemingly a Trump presidency has heightened optimism around Tesla’s future as an artificial intelligence (AI) powerhouse. With a forward price-to-earnings ratio of 163.9 times, Tesla trades at an 828.9% premium to the consumer discretionary sector median, indicating extremely high growth expectations.
Meanwhile, the forward price-to-earnings-to-growth (PEG) ratio of 18 times is 982.9% higher than the sector median, suggesting that investors are pricing in extraordinary growth potential beyond traditional automotive metrics.
This valuation discrepancy highlights the market’s focus on Tesla’s technological ambitions rather than its current automotive business. Investors are essentially paying a premium for Tesla’s potential to dominate in AI-driven transportation and robotics, despite the inherent risks and uncertainties in these emerging fields.
The significant deviation from both sector averages and Tesla’s own historical valuations underscores the speculative nature of these bets on future technological breakthroughs. However, many investors simply don’t want to bet against the world’s richest person and his ally in The White House.
Outsized gains aren’t an impossibility
Tesla’s Trump-driven rally has started to lose momentum. This has been compounded by moderating sales and the DeepSeek-induced pullback. Despite promises to improve sales in 2025 and a revamp of the Model Y, the stock is down around 11% since the turn of the year.
However, as I mentioned, Musk’s a very hard man to bet against. The company’s technologically is reportedly ahead of its peers when it comes to computable automation and has the capacity to scale its humanoid robotics venture arguably faster than any other company. Personally, I’m not buying the stock. My exposure’s purely through investment trusts.
