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The public name-calling between Elon Musk and President Trump may be over (for now), but the debate around Tesla’s (TSLA) stock is only set to heat up as investors digest the upcoming robotaxi launch and likely another weak quarterly report in late July or early August.
As one would expect, the very public spat that erupted between Musk and Trump has sent shares of the EV maker on a wild ride.
Tesla shares are off by 8% (and a lot more at the height of the sparring session) in June versus a 2% gain for the S&P 500 (^GSPC) as investors fear Trump will take aim at Musk’s various lines of business. That’s even if the president has cooled his rhetoric on Musk — the president isn’t one to forget digs, ever.
Musk being out of Trump’s inner circle also runs counter to the bull thesis of Tesla’s stock following the November election. Remember, Musk being the “first buddy” was supposed to lead to millions of Tesla’s driverless cars on the roads and the extension of the Biden administration’s EV tax credit, among other pie-in-the-sky predictions that swirled.
Good luck with that now, Tesla bulls.
But the dustup between the two powerbrokers brings to light a major problem for Tesla’s stock as Musk tries to jump-start a sagging EV business by again sleeping inside a factory. There is a BIGLY disconnect between Tesla’s valuation and what’s happening underneath the surface.
For example, Tesla’s stock is up 12% since October 2022, but consensus EPS estimates for 2025, 2026, and 2027 have since plunged 77%, 70%, and 71%, respectively, according to new research from JPMorgan auto analyst Ryan Brinkman.
You can study Tesla’s EPS estimate trends for yourself on the Yahoo Finance platform.
The stock is valued at a significant premium to the broader market despite EV tax credits likely going away. Tesla’s forward price-to-earnings multiple stands at an eye-popping 166 times compared to 22 times for the S&P 500.
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No clue how one can reasonably justify that, given Tesla’s weaker fundamentals and as it’s heading into at least two years of heavy investment to support robot building and robotaxi operations.
The EV tax credit has been a driver of Tesla’s sales and profits. EV subsidies represent about 52% of Tesla’s current profits, Brinkman estimates. Trump’s “big, beautiful bill” that removes the EV tax credit could wipe out these profits for Tesla.
Brinkman expects financial estimates to drop in the near term as the impact of the EV subsidy removal becomes clearer. He pointed out that there has been no uplift to medium-term outlooks like sales or earnings due to Musk’s Trump connection.
Therefore, the post-election Tesla stock rally was “some combination of ‘animal spirits’, ‘speculative fervor’, and ‘irrational exuberance’ allowing for greater investor entertaining of very long-dated bull theses which in our estimation are unlikely to hold up medium-term against the weight of higher-for-longer interest rates and any eventual risk-off shift in the market eliciting sector and thematic rotation,” Brinkman said.
At some point, the stock has to correct for these elements to the story. Is this finally the moment? I would say this: An electric car eventually runs out of a charge, right?
Before you go…
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Assessing the economy from the beach: By the time you read this, I will have touched down in France for this year’s Cannes Lions advertising and media festival. It’s an interesting, hot as hell, seriously crowded event that serves up a good pulse on all things advertising and media. But the past few years, it has morphed into more of a CEO and sports celeb scene — making it fertile ground to get clues on the economy, markets, and future investing trends. I have a ton of interviews on tap with market-movers and other fascinating folks, so be sure to stay tuned to Yahoo Finance Monday to Friday.
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The time is coming: Yahoo Finance’s annual Invest conference in November will be here before you know it. New this year is an exclusive dinner the day before the conference for investors, followed by two investor education rooms the next day (along with tons of in-depth interviews). Register for Invest 2025 here.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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