After 40% Rally Since Trump's Comeback, Tesla Still Has Room to Stretch, and How to Navigate Near Sell-Offs
3min read Tesla shares have surged by 40% since Donald Trump secured his second presidency on November 5th. The political power and wealth associated with Trump's return have created a strong market force, with investors believing that the Trump trade is not yet fully priced in. As Tesla shares continue to skyrocket, questions arise about the sustainability of this rally. Is it a long-term play or just another speculative frenzy? Let's delve into the details.
What Makes Tesla Great Again
This bullish phase for Tesla is largely driven by the Trump trade. Elon Musk, a loyal endorser and supporter of Trump, has significantly contributed to this momentum. Musk's PAC reportedly spent an estimated $200 million to help elect Trump, and he has shown explicit support both publicly and on his social media platforms. Trump praised Musk as a "new star" during his victory speech and even involved him in a call with Ukrainian President Zelenskyy, highlighting Musk's influential position.
Investors have high expectations for Trump's official inauguration on January 20th, 2025, particularly regarding policies that could benefit Tesla. Trump has committed to reducing the corporate tax rate to 15% for companies that manufacture their products in the U.S., which would include Tesla. Additionally, Tesla's robotaxi, Cybertruck, and other vehicles are set to begin mass production in 2025, potentially receiving substantial subsidies from the new administration.
Many Tesla and Musk believers view Tesla as an AI company, now ranking as the seventh-largest U.S.-listed company, worth more than the next 15 largest carmakers combined. Although Tesla's AI and autonomous efforts have not yet fully materialized, Trump's administration is expected to accelerate the company's ambitions for a fully autonomous driving program and its monetization.
Despite Trump's preference for oil and the possibility of terminating all EV subsidies, analysts like Wedbush's Dan Ives believe this could present more opportunities for Tesla. Ives argues that Tesla's scale and scope would give it a competitive advantage in a non-EV subsidy environment starting in 2025, pushing cheaper Chinese EV players (like BYD and Nio) out of the U.S. market. Trump might still adopt some Tesla fleets under his administration, rather than completely opposing EVs.
With the strong alliance between Trump and Musk, Tesla's future appears brighter than ever. However, is the rally overextended, or should investors proceed with caution? Let's analyze the technical aspects.
Technical Side: Below Historical Highs, But Short-Term Signals Indicate Caution
Tesla has risen for five consecutive days (with a sixth day incoming), yet the shares remain slightly below their all-time high of $414, reached in November 2021. Given the positive macro sentiment and investor enthusiasm, it wouldn't be surprising to see the shares reach new highs. Despite hedge funds reporting losses of at least $5.2 billion from shorting Tesla during the November 5th-8th period, the short ratio remains at a 12-month high. This suggests a potential for a short squeeze, as more shorts may be forced to cover their positions, driving Tesla's stock higher.
On the other hand, some technical indicators are flashing overbought warnings. The shares are currently above the upper Bollinger Band, and the RSI stands above 80, with levels above 70 considered overbought. The last time Tesla's RSI was at this level (87) was on July 10th, after which the stock dropped 31% within a month.
While technical analysis indicates high sentiment, the short-term bullish frenzy may not be over yet. The RSI could still reach extreme levels, and with high short interest, the stock may continue its upward trend in the short term. However, as valuations become extreme, investors might consider cashing out to buy the dips, given Tesla's promising long-term prospects.
What Analysts Say: Long-Term Bullish Outlook
More Wall Street analysts believe Tesla has further room to run. The EV giant is set to soar under a second Trump presidency, according to Wedbush.
Analyst Dan Ives on Monday reiterated his outperform rating and increased his 12-month price target for Tesla to $400 from $300, signaling about a 14% upside from Monday's close. "We believe the Trump White House win will be a game-changer for the autonomous and AI story for Tesla and Musk over the coming years," Ives wrote. Tesla's AI initiatives point to the company's transformation from a car manufacturer to a "leading disruptive technology global player."
A Trump win is expected to clear federal regulatory hurdles that Tesla has faced in recent years. "Now the next step in this broader Tesla strategic vision begins, which is the autonomous and AI era. We believe Tesla remains the most undervalued AI play in the market today," Ives said.
Ives predicted that the AI and autonomous opportunity alone could be worth around $1 trillion for Tesla. With this in mind, Tesla's valuation — currently just over $1 trillion — could rise to between $1.5 trillion and $2 trillion over the next 12 to 18 months.
A Trump win also implies a more bearish outlook for the overall electric vehicle industry, as rebates and tax incentives are likely to be withdrawn. However, this, coupled with more stringent Chinese tariffs, could provide another advantage for Tesla.
To Conclude:
Tesla's recent 40% rally since Trump's comeback is driven by high expectations for favorable policies under his administration. The strong alliance between Trump and Musk, combined with potential tax cuts and subsidies, positions Tesla for significant growth. However, technical indicators also suggest some caution in the short term, with overbought signals and high short interest. We believe the current valuation is not extreme and still has room to grow. However, investors should remain calm and consider cashing out as the frenzy reaches its peak. Given Tesla's long-term prospects, particularly in AI and autonomous driving, any potential sell-off could trigger new buying opportunities, making Tesla a stronger hold in the long run.