On August 13, 2024, Elon Musk interviewed then-presidential candidate Donald Trump on his platform, X. This marked the first major political move Musk made in direct support of a candidate. Up until that point, he had maintained an air of neutrality. However, in the following months, Musk increasingly backed Trump, attending rallies, posting constantly on X, and spending time at Mar-a-lago. When the election finally occurred, it seemed Musk had made the gamble of a lifetime: Tesla stock skyrocketed $228 in value, an increase of 90%, in just over a month. But in the months that followed, nearly all post-election gains were lost. For those paying attention, this was no surprise.
Musk’s Politics
Those closely monitoring Musk’s X account had noticed a shift in the billionaire’s online activity. He had made a habit of interacting with posts of accounts generally considered to be far-right, including those promoting ideas like “white replacement” and “dangerous minorities.” Musk was careful not to share direct opinions, instead replying with cryptic comments like “Concerning…” or “Interesting…” Fortunately for Musk and Tesla investors, most of the general public doesn’t track his X activity closely. However, Musk became increasingly emboldened, and more public, in his views.
Concerns had already been raised about the CEO of an electric vehicle company diving into right-wing politics, especially since left-leaning consumers make up a significant portion of the EV demographic. When Musk made an in-person appearance at one of Trump’s rallies, skepticism intensified, but the surge in Tesla’s stock price temporarily quieted the backlash.
A week after the election, Trump announced the creation of the “Department of Government Efficiency” or “DOGE,” which would be led in large part by Musk. As an unelected official, Musk was given unprecedented influence over the federal budget, signaling that his political ambitions were far from over.
This appointment stirred even more controversy leading up to Trump’s inauguration, the breaking point for Musk’s public reputation. During a speech after the ceremony, Musk “gave his heart out to the crowd” twice. Call it what you will, but when considering what brand of EV to buy, customers now picture Tesla’s CEO doing what looked an awful lot like a Nazi salute.
Musk ignored this backlash and instead expanded his political meddlings into Europe, advocating for multiple right and even far-right parties. This included the AFD, a German party whose proposed solutions to most of Germany’s problems boil down to kicking foreigners out. European Tesla sales dropped even more dramatically than those in America, which brings us to the larger issue behind the stock’s long-term value.
Losing Fake and Real Value
A common metric investors use to assess whether a stock is overvalued or undervalued is the price-to-sales (P/S) ratio, which compares a company’s market capitalization to its revenue over the previous 12 months. A higher P/S ratio indicates a more overvalued stock price.
Tesla has a market capitalization of $1.07 trillion and 12-month revenue of $95.72 billion, giving it a P/S value of 11.17. By comparison, Ford’s P/S ratio is just 0.22, meaning Tesla is overvalued by a factor of 50. Tesla doesn’t actually make as much money or cars as its stock value would suggest, and it’s losing the little profit it does make. Tesla sales dropped by 70% globally from the last fiscal quarter.
Tesla’s stock’s value is built largely on promises and hope, not performance. For over a decade, Musk has promised fully self-driving, Mars colonization, self-driving taxis, and personal robots while repeatedly missing any self-set deadlines. His strategy when investors grow uneasy has been to join a public conference call and deliver sweeping visions of the future. He has claimed that Tesla will be “more valuable than the five most valuable companies combined.”
For a surprisingly long time, this strategy worked like a charm. But the “Musk Effect” has recently worn off. Grand promises no longer make investors forget the money they’re currently losing.
The Future of Tesla
The stock price has rebounded slightly in the past month, aided by Musk’s exit from DOGE and the hope that the controversies will quiet down. But I don’t see his presence at Tesla making a significant difference, and the stock remains massively overvalued. If I were a betting man, I’d wager that the next five years will not be prosperous for Tesla investors.
