Trump’s victory drives financial markets higher; Electric vehicle manufacturer Tesla is up 15%

by Junna Base November 6, 2024

The day after Republican Donald Trump’s victory, financial markets were thrown into turmoil, a signal to investors that the next president will be good for business.

The Dow Jones Industrial Average shot up 1,508 points in Wednesday trading, while other indexes also posted big gains. Tesla Inc. shares rose as much as 15% as investors bet the Elon Musk-led electric vehicle maker will be a big beneficiary of Trump’s return to the White House. However, the impact of the election result on stocks of other automakers, including the Detroit Three, proved less dramatic.

Ford Motor Co.’s stock price closed up 5.5%, while General Motors Co. rose 2.5% on the day, and Stellantis NV’s stock – hit this year by slow U.S. sales and The car manufacturer’s inventory build-up was affected – rose only slightly. Shares of German automakers including BMW AG and Mercedes-Benz Group AG fell amid disappointing quarterly results and concerns over Trump’s threats to raise tariffs on imported cars.

Stocks rallied overall on Wednesday on Trump election news. The leading index S&P 500 rose by more than 2.5% by the end of trading; the Dow Jones Industrial Average rose about 3.5%; and the tech-heavy Nasdaq rose nearly 3%.

In the final days of the campaign, Tesla CEO Musk emerged as arguably Republicans’ most prominent supporter this election cycle, backing them with more than $130 million in spending and relentless messaging on X, his social network formerly known as Twitter .

Still, Trump criticized electric vehicles throughout his campaign, such as telling an audience of business leaders in Detroit that the push for more electric vehicles was “insane” and promising that the “gasoline engine is here to stay for a long time” under a Trump presidency. And Trump used a campaign stop in Flint to urge the Detroit-based industry to leave the electric vehicle business to Chinese competitors. Still, the future president somewhat softened his tone on electric vehicles after Musk gave his endorsement.

“Let me tell you, we have a new star, a star is born: Elon,” Trump said while addressing his supporters at his election watch party in West Palm Beach, Florida, early Wednesday morning. He spoke about Musk for nearly four minutes, praising his company SpaceX and calling him a “special guy” and “super genius.” Tesla shares were trading at multi-month highs.

Trump’s opponent, Vice President Kamala Harris, would likely have stuck with policies supporting the production and sales of electric vehicles in the U.S., including the Inflation Reduction Act that President Joe Biden signed into law two years ago. But Musk had previously angered Biden, in large part because the Democrat supported unions and did not credit Tesla for leading the transition to electric vehicles.

Several provisions related to electric vehicles could now be targeted for repeal – especially if Republicans win both chambers of Congress, BloombergNEF analysts warned last week. However, fuel economy and emissions requirements are also likely to be revised, as was the case during Trump’s first term. And that could limit the revenue Tesla generates by selling regulatory credits to manufacturers struggling to comply with Biden’s stricter rules.

The Detroit Three are all developing and releasing electric vehicles, spurred by up to $7,500 in tax credits on offer, and these electrification growth efforts would certainly be hampered if the incentives were removed. Still, all three still do big business in SUVs and pickups with internal combustion engines, and the ability to sell these profitable vehicles for longer under a Trump administration that is more lax on emissions requirements would likely help them make the transition to electric vehicles more easily to design.

“We view (Ford and GM) as the primary beneficiaries of the Trump administration,” said a note from BofA Securities analyst John Murphy. “The current environmental regime would put pressure on the core business of legacy companies (automakers that build trucks) to reduce CO2 emissions by the end of the decade while quickly transitioning to an electric vehicle portfolio, higher tariffs on Mexico imports for ( Ford and GM) given their direct and indirect dependence on the region.”

Meanwhile, Murphy wrote that electric vehicle makers not named Tesla – including Rivian Automotive Inc. and Lucid Motors – may be “challenged” under Trump, perhaps due to slower demand due to less pressure to switch to electric powertrains.

Potential cuts to tax incentives under Trump would be “overall negative” for the electric vehicle industry, Daniel Ives, an analyst at Wedbush Securities, wrote in a note to clients. But Tesla has the size and scope to continue selling while benefiting from Trump’s promise to increase tariffs on Chinese electric vehicles, which will help protect the market for the domestic automaker. However, these tariffs could backfire if they trigger a trade war with Beijing and hurt Tesla’s ability to sell in China.

Additionally, the Wedbush report said, Trump could help accelerate autonomous vehicle development for Tesla and rival Waymo, which investors see as crucial to the company’s growth.

Still, there could be downsides to Tesla and its CEO’s support of Trump, including on the consumer demand side in the United States, Ives noted. The reason: Potential customers dissatisfied with Musk’s ties to Trump may turn away from the electric vehicle maker “when purchasing decisions are ultimately made over the next year.”

Jessica Caldwell, head of insights at Edmunds, said in an emailed statement that it’s possible Musk could use his influence over Trump to continue to help the electric vehicle industry as a whole, possibly including with a range of new incentives.

“Musk has made it clear from the start that he wants to grow the electric vehicle market beyond Tesla. Therefore, it is possible that he will seek to influence a new incentive structure that continues to support broader adoption of electric vehicles in the U.S.,” Caldwell said. “These policies are unlikely to change overnight, but consumers who wanted to take advantage of the electric vehicle tax credits and reduced costs may consider increasing their purchases a little sooner.”

Financial firm CFRA Research on Wednesday upgraded its opinion on Tesla stock to “buy” from “hold,” with analyst Garrett Nelson noting that Tesla and Musk are “perhaps the biggest winners from the election results,” and that could prompt faster approval for the share represents the company’s autonomous driving technology. He agreed that a possible cut in electric vehicle tax credits under Trump would benefit Tesla as “the only profitable electric vehicle manufacturer.”

Musk himself has downplayed the threat of a decline in government incentives for electric vehicles and highlighted the potential for companies to benefit from deregulation. During Tesla’s quarterly conference call last month, he called for a federal approval process for autonomous vehicles and said he would “try to make that happen” if tapped for a role in Trump’s administration.

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