What the Election Means for Tesla and Other Car Stocks

In the landscape of auto stocks, a significant trend is emerging as we approach the election. On Wall Street, one name stands out as the likely victor regardless of who wins: Tesla.

This year, investors have had more pressing concerns than the political climate impacting the automotive sector. Traditional automakers have faced challenging years; for instance, Ford Motor has seen its stock decline by 6.7%, while Stellantis, the parent company of Chrysler, has plummeted by 41%. Conversely, General Motors has made a notable performance, boasting a 47% increase in 2024, primarily due to a stable business model and extensive share repurchase programs.

A Look at Valuations

Despite GM’s success, the traditional auto trio trades at an average of about 5 times estimated 2025 earnings, which is significantly lower than the S&P 500’s 21 times earnings metric. The outlook for electric vehicle (EV) manufacturers is equally grim. Through Monday’s close, Tesla stock had risen by only 5.7%, lagging the S&P 500 by approximately 14 percentage points. Meanwhile, emerging EV companies like Lucid and Rivian Automotive have seen their shares fall by 40% and 54%, respectively.

Challenges Facing the Auto Industry

Numerous factors are contributing to the auto industry’s challenges this year. Investors are particularly apprehensive about:

Slowing growth in electric vehicle adoption, following substantial investments made by manufacturers.
Recent declines in new car prices and increasing incentive levels.
High dealer inventories.
Decreasing production growth rates.

These challenges are expected to persist, irrespective of the election’s outcome. However, the election results could still play a crucial role in shaping the future of some auto stocks.

The Impact of Election Outcomes

While Wall Street analysts predict that a win for Vice President Kamala Harris would sustain the status quo—implying no significant changes to emissions policies or EV tax credits—a victory for former President Donald Trump holds potential for considerable shifts. Analysts, including John Murphy from Bank of America Securities, suggest that a Trump administration might eliminate EV purchase tax credits, resulting in a slowdown in electric vehicle sales growth. Furthermore, Trump’s inclination to implement higher tariffs could adversely affect automakers reliant on Mexican production, which includes many vehicles sold in the U.S.

In fact, this scenario could prove beneficial for both Ford and GM, as both companies profit significantly more from traditional gas-powered vehicles. Analysts point out that Ford is particularly well-positioned for a second Trump term due to its reduced exposure to Mexican manufacturing compared with GM and Stellantis.

Tesla’s Path Forward

Regardless of the political victor, analysts maintain that Tesla stands to gain. Should Harris win the presidency, Tesla will continue to leverage EV tax incentives and sell U.S. regulatory credits. In contrast, if Trump is victorious, Tesla might benefit from its lack of manufacturing in Mexico and the potential for CEO Elon Musk to influence policy within a Trump administration.

Analyst Ronald Jewsikow from Guggenheim anticipates a Republican win would likely favor fewer restrictions on autonomous driving regulations, aligning with Tesla’s plans for the launch of its robo-taxis by late 2025. Although a Trump administration might create negative pressures on Tesla’s core EV business, growth in autonomous vehicle regulations could offer a different avenue for stock performance, possibly rallying in value as a result.

Outlook for Auto Parts Suppliers

The auto parts suppliers within the Russell 2000 have faced significant downturns, trading at merely 12 times forward earnings and experiencing an average drop of 27% thus far in 2024. However, if Harris remains in power, companies such as Aptiv and TE Connectivity could see improved performance as they supply more parts for EVs than traditional combustion vehicles, according to Wolfe’s Emmanuel Rosner.

Conclusion

Ultimately, while the election results will play a role in shaping the future landscape of the auto industry, it is essential for investors to recognize that a myriad of factors beyond politics influences what car companies earn and how investors value their stocks. Whether it is Tesla, GM, or traditional automakers, the path ahead will be shaped by a combination of market forces and political decisions.

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Election Insights: How Tesla and Car Stocks Will Be Affected, Regardless of the Winner