Elon Musk's big gamble: Will Tesla stock plunge if Kamala Harris wins the election?

The Tesla CEO has been an outspoken advocate for GOP presidential candidate Donald Trump. Will it backfire?

| More on:
Man holding up betting slip and cheering along with two friends in front of TV

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

At least in terms of dollars, there may be nobody with more on the line in the upcoming election than Tesla (NASDAQ: TSLA) CEO Elon Musk.

Out of any well-known business leader, Musk has been the most visible advocate for former president Donald Trump, even appearing at his rallies, including Trump's "closing argument" rally last Sunday at New York City's Madison Square Garden.

It's a bit ironic that Musk has chosen to align with Trump, as the former president has regularly derided electric vehicles and renewable energy, but Musk seems to prioritise the GOP's promise to cut regulations and believes Trump is more aligned with his views on other issues like "free speech." Musk was also reportedly stung by President Joe Biden's not inviting him to participate in a panel discussion on EVs near the start of Biden's administration. He has since drifted away from Democrats and toward Republicans.

Musk's big bet on the Trump campaign comes just as Tesla is ramping up its own bet on autonomy as the company introduced its autonomous "Cybercab" at an event earlier in October. The Tesla chief has essentially said that the future of his company depends on autonomy and that it's the best-positioned company to lead the transition to autonomous vehicles (AVs).

Tesla's big election risk

Tesla can't make the transition to autonomous vehicles without the help of the federal government and agencies like the National Highway Transportation Safety Agency (NHTSA), as well as state-level regulators, which also need to sign off on the new technology. Musk even expressed his desire for a federal mechanism to regulate AVs on Tesla's recent earnings call, rather than doing it at the state level. He aims to launch the Cybercab initially in Texas and California.

Naturally, safety is a top concern of both regulators and anyone on the road, and AV accidents have already delivered significant setbacks to companies like Uber Technologies and General Motors that have had aspirations of bringing AVs to market.

Currently, the NHTSA doesn't allow vehicles, like the Cybercab, on the road without driver controls like a steering wheel or pedals. When and if it does, that transition is likely to happen slowly. Tesla may be able to get an exemption to put 2,500 Cybercabs per year on the road, but that is still a far cry from Musk's vision of putting millions of these cars on the road each year.

If Vice President Kamala Harris wins the presidential election on Tuesday, there won't be any immediate consequences for Tesla. Given the animosity Musk has shown toward Democrats and regulators in recent years, his elevation of right-wing views on X (the social media company he owns formerly known as Twitter), and his insults of Harris and other Democrats, it would be easy to imagine regulators taking a harsher view of the leading EV company, perhaps even dragging their feet on Tesla's autonomous aspirations or showing preference to Tesla's competitors, given Musk's antics during the campaign. It's quite rare for a CEO of such a large publicly traded company to advocate so strongly for one presidential candidate and against another. Typically, big companies hedge their bets as they want to stay in the good graces of the winner, whoever that is.

Tesla investors should note that most Democrats in office or running for office (including Harris) have not publicly targeted Musk or called for actions against him or against Tesla (or any of Musk's other companies) based on his political views. Harris has said while campaigning that she is running for office to represent all Americans and that she accepts that there will be opposition to her leadership. Certainly, some candidates and Harris surrogates have suggested Musk is misguided in his views and/or that he has misled the public about some of the views he is expressing. Some left-wing punditry have expressed concerns about Musk and the actions he has taken and have called for investigations into those actions as potentially violating various laws. The closest Democrats, including Harris, have come to discussing Musk or Tesla are campaign platforms that call for tax policy changes and regulatory changes that would affect billionaires and corporations generally.

Why it's a problem for Tesla

Tesla is a low-margin automaker that trades at the valuation of a disruptive tech company. That's because of its leadership in electric vehicles and Musk's promises around autonomy, but Tesla stock could have a long way to fall if the autonomous transition doesn't pan out, especially after the stock just surged on its third-quarter earnings report.

Tesla stock currently trades at a price-to-earnings (P/E) ratio above 100, even though it's expected to report flat revenue growth this year. Musk has forecast production growth of 20% to 30% next year, but at this point, especially after all of Musk's hype around autonomy, a failure or significant delay in getting there is likely to hammer the stock.

For a preview of what that could look like, investors only have to look back to the market's reaction to the Oct. 10 "We, Robot" event as the stock fell 9% as investors had hoped for more details on the Cybercab and Tesla's Optimus autonomous robot.

Tesla under a Harris administration

Musk's support of Trump during the campaign could easily be irrelevant in a Harris administration, and the company could end up getting its wishes from regulators no matter who's in the White House.

But right now, the Tesla chief's partisanship is a clear risk to the stock if Trump loses. The EV stock may not plunge on a Harris victory, but it should put a ceiling on the stock until it's clear that regulators will not oppose Tesla's path to autonomy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Motley Fool contributor Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla and Uber Technologies. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended General Motors and has recommended the following options: long January 2025 $25 calls on General Motors. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »

A woman smiles over her shoulder as she sits in the driver's seat of a car with keys in hand.
International Stock News

Why Tesla stock just popped

Tesla stock raced ahead Monday after Bloomberg reported the incoming Trump administration's intentions around self-driving vehicles.

Read more »

A woman holds her hand out under a graphic hologram image of a human brain with brightly lit segments and section points.
International Stock News

Prediction: Nvidia stock is going to soar after November 20

Nvidia is scheduled to report third-quarter earnings on Wednesday.

Read more »