Why Backing Trump is a Bigger Risk for Tesla Stock than for Elon Musk

Tesla (TSLA) CEO Elon Musk has endorsed Republican nominee Donald Trump for the 2024 U.S. Presidential elections. The widely held view is that Musk – who heads the biggest and most valuable electric vehicle (EV) company on the planet – could hamper Tesla’s fortunes by unabashedly aligning himself with Trump, whose views on climate change and EVs are in stark contrast to his own.

Trump is a climate change denier, and pulled the U.S. out of the Paris Climate Agreement during his first presidency. Incidentally, Musk - who was part of Trump’s economic advisory council until then - quit his position, as it apparently became untenable for him to back the move. Trump now appears open to giving Musk an advisory or cabinet position if he is re-elected - something that the world's richest person has hinted he will accept.

In this article, we’ll discuss what Musk’s backing of Trump means for Tesla investors, as well as his other companies.

Trump Has Talked About Rolling Back EV Tax Credits

Trump hasn’t softened his views on climate change or energy policies, and has talked about ending the EV “mandate” on the first day of his presidency. He has also floated the possibility of ending the EV tax credits which were expanded under President Biden’s tenure. Notably, while Tesla cars did not qualify for EV tax credit previously, they became eligible after the Biden administration passed the Inflation Reduction Act of 2022.

While it does not seem likely that Trump would actually roll back the EV tax credit, if he does, it won't particularly hurt Tesla and would instead impact the overall industry. Before the Inflation Reduction Act passed, while other carmakers were eligible for the tax credits, General Motors (GM) and Tesla were both ineligible, as their overall EV sales had already crossed the minimum threshold.

Musk is Turning Away Liberal Car Buyers

Musk’s antics and his gradual tilt toward the right seem to have turned some liberal EV buyers away from Tesla. Surveys have shown buyers on the left of the political spectrum are shunning Tesla cars, and in a more recent case, German drugstore chain Rossmann said it would stop buying Teslas for its fleet due to Musk’s support for Trump. However, beyond some liberal auto buyers turning away from its cars, the bigger worry for Tesla is the overall slowdown in EV sales.

Trump’s stance on autonomous driving – which is a key moving part of Tesla’s valuation – is quite ambiguous so far. While he does not seem to be a fan of self-driving cars, in January 2021, the then-outgoing Trump administration relaxed the rules to enable autonomous vehicles to bypass some crash standards, which helped cut the industry’s production costs.

Cozying Up to Trump Could Give Musk a Place at the ‘High Table’

Relations between Musk and Biden were fraught from quite early on, as the President did not invite him to a 2021 White House event to discuss EV strategy while hosting the heads of Ford (F), General Motors, and Stellantis (STLA).

The exclusion from the “high table” angered Musk, and perhaps rightly so, as Tesla is still by far the biggest EV maker - not only in the U.S., but also globally. By backing Trump, Musk has a chance to be in a position to influence policymaking if Trump is reelected.

Let’s think of it this way; a Harris administration might only expedite the renewable energy pivot that was started under Biden’s tenure, irrespective of Musk’s political positioning. However, by having a say in the Trump administration, Musk has a chance to at least tone down any adverse policy moves related to EVs and renewable energy.

All of that said, I believe that more than the EV policy, it’s the next administration’s artificial intelligence (AI) policies that Musk might be more interested in.

Trump Wants to Repeal Biden’s AI Executive Order

Trump in general has batted for fewer regulations, and has the same stance toward AI. 

“We will repeal Joe Biden's dangerous Executive Order that hinders AI Innovation, and imposes Radical Leftwing ideas on the development of this technology. In its place, Republicans support AI Development rooted in Free Speech and Human Flourishing,” says the GOP platform.

Notably, AI could be the next growth driver for Tesla, as the company works on products like the Optimus humanoid, which Musk believes could add significant value for investors. 

Musk has also built his own AI company, named xAI, and has been famously critical of OpenAI – a company that he co-founded. xAI is already a $24 billion enterprise, and could see further traction as AI euphoria continues more or less unabated.

Why Musk Backing Trump Is Still a Risky Bet for Tesla

Meanwhile, aligning with Trump unequivocally has its own sets of risks for Musk and Tesla. First, the former president is known to be quite mercurial and volatile, which was well highlighted by the churn in his previous cabinet.

Second, Trump ratcheting up the trade war with China might not be in Tesla’s best interest, as in the past Trump’s aggressive stance against the country led to calls for a boycott of U.S. brands in the Communist country. Musk has been trying to strike a fine balance in China, where Tesla runs its most profitable factory, and even opposed the Biden administration’s quadrupling of tariffs on EVs built in China.

Notably, the Republican platform talks about enhancing “partnerships with the rapidly expanding Commercial Space sector” – a move that could benefit SpaceX. 

Overall, Musk has taken a calculated risk by backing Trump, but the rewards seem more skewed towards his personally held companies, like xAI and SpaceX, than Tesla. His X investment (formerly Twitter) could be another beneficiary, as Trump's return to the site should lead to higher engagement - even as it remains to be seen whether advertisers change their opinion over the social media platform, which has seen rising instances of hate speeches and fake news, prompting many to stop advertising there.