Tesla's stock price skyrocketed by 31%, but market divergence has emerged, with analysts warning of a 28% downside risk

According to Zhitong Finance APP, with Elon Musk's full support for Donald Trump, Tesla Inc. (TSLA.US) saw its stock price soar nearly 31% after the election, with its market value surging by nearly $250 billion. This extraordinary increase has drawn widespread attention and cautious calls from Wall Street. Although Tesla's strong stock performance benefits from Musk's leadership role in the new government's efficiency initiatives and a potentially more favorable regulatory environment, analysts and market participants have differing views on the Trump administration's attitude towards electric vehicles and its potential policy impacts. Some believe that Tesla's stock price faces a 28% downside risk. This represents the largest valuation divergence since the tech stock frenzy post-pandemic.

The surge in Tesla's stock price far exceeds analysts' target expectations, reflecting the challenges analysts face in assessing the specific impacts of Trump administration policies on Tesla. On one hand, Musk benefits from his leading role in government efficiency initiatives and potential regulatory advantages; on the other hand, Trump's skeptical attitude towards electric vehicles has led some investors to be cautious about Tesla's gains. Nevertheless, some long-term bullish investors believe that despite the short-term overheating, Tesla's long-term outlook remains optimistic.

Adam Sarhan, founder and CEO of 50 Park Investments, commented, "The market reaction triggered by Trump's victory is undoubtedly explosive for Tesla. While Tesla can certainly gain some potential benefits under Trump's administration, the rapid rise in the current stock price seems overly exuberant in the short term. However, in the long run, the stock's development prospects remain optimistic."

In fact, accurately valuing Tesla has always been a challenge, leading to significant differences between the lowest and highest target price forecasts for its stock. There has been widespread debate in the market about how to position Tesla—whether to view it purely as an automaker, a technology company, or a unique hybrid entity. Additionally, Elon Musk's personal brand influence and the potential value of unreleased products (such as the rumored robotaxi) further complicate the valuation of Tesla.

However, the post-election stock price rebound, combined with better-than-expected third-quarter results, has further pushed up Tesla's already high valuation. As of Tuesday's close, Tesla's expected price-to-earnings ratio reached as high as 104 times, significantly exceeding the mid-single-digit price-to-earnings ratios of traditional automakers and the average price-to-earnings ratio of the seven tech giants at 32 times.

Now, the Trump administration's rise brings new valuation challenges, as analysts assess the impacts of political and economic factors, including potential reversals in electric vehicle policies, geopolitical issues, and rising inflation, on Tesla's fundamentals.

From a macroeconomic perspective, some of the policies proposed by Trump could trigger inflation, which has become a potential concern. In recent years, due to reduced consumer spending on bulk purchases, Tesla and other automakers have already experienced a decline in sales On the other hand, Edison Yu of Deutsche Bank believes that some policies of the Trump administration may be beneficial to Tesla, such as simplifying federal regulations for autonomous vehicles and supporting the humanoid robots Tesla is developing. This could further consolidate Tesla's leading position in the electric vehicle sector.

Yu pointed out that if the Inflation Reduction Act is repealed or modified, or if additional tariffs are imposed on imported components, Tesla's competitive advantage may be enhanced. However, he also acknowledged that quantifying the specific benefits of the Trump administration for Tesla is "more of an art than a science."

Morgan Stanley analyst Adam Jonas holds a similar view, mentioning in his report that while it is difficult to quantify the extent to which Tesla is affected by Elon Musk's relationship with the Trump administration, the pace of Musk's growing influence is undoubtedly accelerating, both in reality and perception.

Both Yu and Jonas have given Tesla stock a buy rating and maintained their target price in their latest reports.

As signs of cooling in Trump's other deals emerged, Tesla's stock price fell 6.2% to $328.49 at Tuesday's close. However, after the news of Musk being appointed as the new head of the Office of Efficiency in the government, the stock price briefly rose 3.3% in pre-market trading on Wednesday.

Despite Tesla's stock price having risen over 50% since the earnings report, raising skepticism among some on Wall Street, even if Tesla does benefit from Musk's personal relationship with Trump and other factors, the sustainability of this surge is in question.

David Wagner, a portfolio manager at Aptus Capital Advisors and a long-term investor in Tesla, stated, "Even if you are optimistic about Tesla's long-term growth prospects, the current stock price surge seems difficult to sustain. It is unreasonable for Tesla's stock to be influenced by political momentum again."

Overall, Tesla's stock price soared and its market value increased significantly after Musk supported Trump, but analysts and market participants hold differing views on the specific impact of Trump administration policies, leading to downside risks for the stock price. While long-term bulls remain optimistic about Tesla, the overheating of the short-term surge and the uncertainty of valuations have kept some investors cautious