Will Trump Drive Tesla on Road to Ruin?

Will Trump Drive Tesla on Road to Ruin?

Posted On January 26, 2017 11:13 am

Since the election investors have been trying divine which stocks are “Trump” stocks and which are not. Jim Cramer has even added a sound button on his Mad Money show. And CEOs have been parading into meetings with the President trying to keep in good graces or at least avoid a tweet targeting their company.

Given Trump’s focus on boosting the big three U.S. automakers, promotion of fossil fuel and attacks on government subsidies one would think a company like Tesla (TSLA) would be running scared. In case you need reminding, Tesla, which recently merged with Musk’s Solarcity, builds electric vehicles and solar panel in mostly automated/robotic production and receives gobs of government credits and subsidies to make its money losing cars somewhat affordable. About the only “Trump” positive about Musk’s enterprises are they do the bulk of the manufacturing in the U.S; many parts are imported from China and elsewhere.

So it’s somewhat surprising that shares of Tesla have surged some 40% since the election and now stand just shy of the all-time high. Maybe runner will meet the road when the company is set to report earnings on February 8th. Elan may sense he’s going to need Trump on his side as he had a nice billionaire to billionaire tete a tete with the President earlier this week.

Bloomberg has a nice run down of the what is shaping up to be odd and perhaps tension filled, relationship. You can read the entire article here:

Tesla shares have enjoyed a straight line up, gaining some 40% since the election.

It’s a good time to be Elon Musk.

Shares of the billionaire’s Tesla Motors Inc. have surged 40 percent since Dec. 1, putting the stock within reach of a 52-week high. The acquisition of SolarCity is complete. Musk’s sprawling Gigafactory is now producing battery cells. And the clean-energy evangelist has the ear of a surprising fellow in Washington: President Donald Trump.

It’s a big turn of fortune from 2016, when skepticism was mounting that Musk could juggle his ambitious goals. Tesla’s shares crossed above analysts’ 12-month price target as of this week and are trading at about $254, the highest since April. One reason for the surge — progress toward production of the mass-market Model 3 electric car by year-end — has also burnished Musk’s appeal as an adviser to the new president.

“Tesla is a poster child for Made in the USA, and the one thing that is a clear focus for Trump is creating manufacturing jobs,” said Ben Kallo, an analyst at Robert W. Baird. “Investors want to own the stock ahead of the Model 3 launch.”

Palo Alto, California-based Tesla’s cars are all produced in the U.S., so Trump’s threats to tax imports could be a boon to the maker of electric vehicles and energy storage devices. Tesla, which has 25,000 workers in the U.S., builds vehicles in Fremont, California; its Gigafactory lies in a Republican congressional district in Nevada; and it has partnered with Panasonic Corp. to produce solar cells and panels beginning this summer in Buffalo, New York. The rockets launched by his closely held Space Exploration Technologies Corp. are all made at SpaceX headquarters in Hawthorne, California.

Trump Adviser

Musk was one of a dozen chief executive officers who met with Trump at the White House Monday to talk manufacturing, taxes and trade. He serves on the president’s economic advisory board and regularly meets with either Trump or his top aides.

“Elon Musk has an important line of communication to Donald Trump,” Morgan Stanley analyst Adam Jonas wrote in a note last week as he raised his price target to $305 from $242. “This strategic relationship between Tesla leadership and the new administration is an important development.”

Tesla was little changed on Wednesday at $254.47, about $9 above analysts’ average price target. It’s approaching the 52-week closing high of $265.42, set April 6, and is about $30 from the closing peak set in September 2014. Analysts remain split on its prospects, with eight calling it a buy, 10 a hold, and six a sell.

The Odd Couple

Musk, 45, and Trump, 70, may seem an odd pair. Before the election, the South Africa-born entrepreneur said on CNBC that Trump “doesn’t seem to have the sort of character that reflects well” the U.S. and urged people to revolt and fight the “propaganda” of the fossil fuel industry. Trump, of course, has chosen former Exxon Mobil Corp. Chief Executive Officer

Rex Tillerson to be his secretary of state and Scott Pruitt, an ally of the oil and gas industry, to lead the Environmental Protection Agency.

Even so, there is clearly room for common ground. Musk shocked some of his loyal customers Tuesday when he declared on Twitter that Tillerson “has the potential to be an excellent Sec of State.”

When asked to expound, Musk said “Rex is an exceptionally competent executive, understands geopolitics and knows how to win for his team. His team is now the USA.” Both Musk and Tillerson have expressed support for a tax on carbon emissions.

Twitter Reaction 

Musk’s support for Tillerson brought fire from Michael Mann, a climate scientist whose claim to fame includes the paper outlining the so-called hockey-stick chart of temperature data. “You are a hero to so many climate activists Elon,” Mann wrote on Twitter. “Please don’t lend your imprimatur to an Exxon Mobil-driven foreign policy.”

Policy differences aside, the recent stock surge suggests investors consider it wise for Musk to have a seat at the table.

“Elon is being pragmatic,” said Joe Dennison, associate portfolio manager of Zevenbergen Capital Investments in Seattle. “The administration’s focus on domestic manufacturing plays into Tesla’s hands. It’s a positive that Elon and Tesla are being recognized for the role that they are playing.”

Originally Posted at Bloomberg

Photo: Duncan Rawlinson. Duncan.co via photopin cc

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.