After Trump-Musk feud, here’s the next issue for Tesla stock

In recent days, the public feud between Elon Musk and former President Donald Trump has quieted, but the discourse surrounding Tesla’s stock has not. Investors are anxiously preparing for both the anticipated launch of the robotaxi and potentially disappointing quarterly results expected in late July or early August. As the narrative unfolds, the trajectory of Tesla stock has become a point of concern for many.

The confrontation between Musk and Trump has notably affected Tesla shares, which saw an 8% decline in June, contrasting sharply with a modest 2% gain for the S&P 500. Investors are wary of potential consequences stemming from Trump’s criticism of Musk’s ventures. Trump’s past remarks have raised concerns about the future of Tesla’s various initiatives, including the company’s involvement in the EV market and its ambitious robotaxi projects.

Once considered a close ally, Musk’s separation from Trump’s inner circle is leading many to reassess their bullish outlook on Tesla stock. Predictions that Tesla would benefit from friendly relations with the administration, including an expansion of the EV tax credit, seem increasingly unrealistic. Currently, the bulls face a challenging landscape.

Beyond the political drama, a pressing matter for Tesla investors is the widening gap between the company’s high stock valuation and its underlying fundamentals. While Tesla’s stock has gained 12% since October 2022, consensus earnings per share (EPS) estimates for the upcoming years have plummeted by 77%, 70%, and 71% for 2025, 2026, and 2027, respectively, according to recent research from JPMorgan automotive analyst Ryan Brinkman.

Behaviorally, Tesla shares are being traded at an exorbitant forward price-to-earnings (P/E) multiple of 166 times, illustrating a stark contrast to the broader market’s 22 times. This discrepancy raises questions about the sustainability of Tesla’s valuation, especially as the company prepares to invest significantly in robot and robotaxi technology over the next several years.

Historically, EV tax credits have bolstered Tesla’s sales and profits, with an estimated 52% of the company’s current profits linked to these subsidies. However, the prospect of Trump’s proposed legislation removing these tax credits looms large, threatening to erase the profit margins that have fueled Tesla’s growth.

As Brinkman elaborates, the anticipation of financial estimates declining is driven by the realization that the removal of EV subsidies could profoundly impact Tesla’s profit landscape. Notably, the previous stock rally that followed the 2020 election was characterized by speculative fervor and a blend of optimism surrounding the future of the EV industry.

Yet, investors should recognize that these sentiments may not hold true in a climate of persistent high-interest rates, combined with an anticipated shift toward risk-averse market behavior. Current observations imply that any ratification of long-term bullish projections is increasingly challenged by market realities.

Amid all this, it’s essential to remember that Tesla, like any electric vehicle, can run out of momentum. The essential question surrounding Tesla stock revolves around whether this moment of correction is imminent. As investors navigate the complexities of the post-election landscape, there’s a palpable sense of caution in the air.

In conclusion, while the drama surrounding Trump and Musk may have subsided for now, the ramifications for Tesla’s stock are set to intensify. Both the debate over the future of subsidies and the ongoing dynamics of market sentiment will play critical roles in shaping Tesla’s trajectory. With the robotaxi launch on the horizon, investors are left to grapple with the dichotomy of a highly valued stock versus the sobering realities of earnings predictions and market conditions.

Ultimately, as we look ahead, Tesla must address its internal challenges and external pressures to maintain investor confidence. The next few months will undoubtedly be pivotal—bringing either renewed optimism or corrective measures for a company that has grown synonymous with the future of transportation.

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