Benefiting from Elon Musk’s full support for Donald Trump, the electric vehicle manufacturer Tesla’s market value has increased by nearly $250 billion in less than a week.
Tesla’s stock rose over 29% last week and continued to climb nearly 9% on Monday, reaching its highest level since April 2022. However, due to the rapid surge in stock prices, which has significantly exceeded the target prices set by most Wall Street investment banks, analysts are urging investors to proceed with caution.
Earlier in the day, President-elect Trump announced that Musk would lead the proposed “Department of Government Efficiency,” alongside entrepreneur Vivek Ramaswamy, with the aim of cutting spending, eliminating regulations, and restructuring federal agencies.
Mainstream views suggest that Musk’s role in the new administration could benefit his companies, but analysts are finding it challenging to assess the extent of this impact. Even some Tesla bulls acknowledge that the recent rebound in the stock is difficult to justify.
Adam Sarhan, founder and CEO of 50 Park Investments, remains bullish but states, “The market’s reaction to Trump’s victory has been explosive for Tesla. While the company is likely to gain potential benefits, the current momentum appears overheated in the short term.”
Regardless of whether viewed as an automotive or technology company, Tesla’s current valuation is extraordinarily inflated. Even after a 6% drop on Tuesday, Tesla’s expected price-to-earnings ratio remains as high as 104, compared to an average of 32 for the “Seven Giants” and single-digit ratios for traditional automakers.
Nonetheless, Edison Yu, an equity analyst at Deutsche Bank, points out that it is currently difficult to quantify the extent to which the Trump administration would benefit Tesla, making even rough estimates challenging. Morgan Stanley analyst Adam Jonas shares a similar sentiment, stating, “It is indeed hard to quantify.”
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