What the Election Means for Tesla and Other Car Stocks
As we approach the critical election season, Wall Street is buzzing with implications for the auto industry, particularly the electric vehicle (EV) segment. Despite the uncertainties surrounding the political landscape, one thing is clear: no matter who wins, Tesla emerges as the undeniable victor in the eyes of investors. But let’s not sugarcoat it—this is a tumultuous year for traditional automakers.
The State of Traditional Auto Stocks
The established players in the automotive market are facing a rough ride in 2024. Ford Motor has slipped 6.7%, while Stellantis, the parent company of Chrysler, has plummeted a staggering 41%. General Motors stands alone with a commendable 47% uptick, largely thanks to a resilient business model and aggressive share repurchase strategies. Nevertheless, these companies currently trade at an average of about 5 times the estimated earnings for 2025—a stark contrast to the S&P 500’s average of 21 times. It’s a glaring sign that traditional automakers are struggling to keep pace, and the long-term outlook remains cloudy.
The Challenge for Electric Vehicles
Interestingly, the electric vehicle manufacturers aren’t enjoying a golden era either. Through the first quarter of 2024, Tesla’s stock has barely budged, up only 5.7%, lagging the broader S&P 500 by around 14 percentage points. Start-ups like Lucid and Rivian are faring even worse, with declines of 40% and 54%, respectively. The investment frenzy around EVs has their stocks in a precarious position, magnified by a host of economic headwinds. Falling new car prices, high dealer inventories, and rising incentives to attract buyers contribute to a climate of uncertainty for future growth.
Political Landscape: Harris vs. Trump
The election’s outcome may not change the trajectory of the auto industry overnight, but it is essential to analyze the potential impacts of different political administrations on EV sales and production capabilities. Should Kamala Harris secure victory, Wall Street anticipates a continuation of the status quo—a probable preservation of current emissions policies and EV tax credits. However, a Trump presidency may spell significant shifts, particularly concerning EV incentives. Trump’s potential decision to eliminate EV purchase tax credits could slow the growth of electric vehicle sales, as noted by John Murphy from Bank of America. Furthermore, the likelihood of increased tariffs could adversely impact profits for companies relying on Mexican manufacturing, which might include many imported vehicles in the U.S. market.
Who Benefits?
Despite the challenges, both Trump and Harris are viewed as potential benefactors for Tesla. Under a Harris administration, Tesla might see boosted sales due to continued support for EV tax breaks. On the flip side, in a Trump win scenario, the absence of Mexican manufacturing could favor Tesla, along with the potential influence Elon Musk might wield in Trump’s inner circle. Guggenheim analyst Ronald Jewsikow further emphasizes that while a Trump presidency could pose challenges for Tesla’s core EV business model, the results could lead to a more favorable regulatory environment surrounding autonomous driving—a niche that Tesla is aggressively pursuing.
The Auto Parts Sector
One cannot overlook the difficulties faced by auto parts suppliers in 2024. Trading at a mere 12 times forward earnings and witnessing an average drop of 27% year-to-date, these smaller players are under intense scrutiny. However, under a Harris administration, companies like Aptiv and TE Connectivity—suppliers heavily invested in EV components—may find themselves in a more favorable position, as their products will be more in demand than those for traditional gas-powered cars, according to Wolfe Research analyst Emmanuel Rosner.
Investor Caution
In sum, the auto industry is at a crossroads. Investors would do well to remember that while political elections can sway regulations and incentives, fundamental business realities often dictate company performance and stock valuations much more robustly. The dynamics of global supply chains, consumer trends, and technological advancements will fundamentally impact the auto industry far more than which party occupies the White House. Proceed with caution, and prepare for the inevitable ups and downs of this ever-evolving market landscape.
