This is an audio transcript of the Unhedged podcast episode: ‘What makes Tesla run?’
Robert Armstrong
Tesla shares are up 14 per cent over the last week. On the other hand, they’re down 10 per cent over the three weeks. But on the other hand, they’re up 84 per cent over last year. And if you bought Tesla shares in October of 2021, they are up zero per cent since then. So the question I have for you listeners is, what makes this crazy thing go up and down?
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from sweaty and humid New York City. I am joined by Unhedged newsletter writer and Elon Musk whisperer, Aiden Reiter. Aiden, it’s good to have you back on the show.
Aiden Reiter
It’s good to be back. I’m not sure I’ve ever been called an Elon Musk whisperer, nor am I sure how you . . .
Robert Armstrong
Well, you’re what passes for an Elon Musk expert around here, Aiden. And I just kind of want to talk about this stock is very hard to understand. I think we’ve put it delicately in the newsletter that it doesn’t exactly respond to fundamentals. It’s some stock, dude!
Aiden Reiter
Yeah, that’s right. It doesn’t seem that the majority of investors in Tesla or even just a large plurality care much what’s going on in the company underneath.
Robert Armstrong
Yes, let me put a couple of possibilities to you. For tools, we can use to understand the movement in the Tesla share price. Let’s start with Donald Trump’s ‘big, beautiful bill’. There’s a couple of things in there that should affect Tesla’s economic future. You want to walk us through those?
Aiden Reiter
Sure, maybe it’s worth taking a step back. While it’s up 14 per cent this week, that’s because it fell 14 per cent on one day last week.
Robert Armstrong
Exactly, yeah.
Aiden Reiter
And that came when Elon Musk and Donald Trump had this huge, huge Twitter slash Truth Social spat.
Robert Armstrong
One of the most amusing internet days we’ve had in a long time.
Aiden Reiter
Absolutely.
Robert Armstrong
So I think the nation owes them both a great debt of gratitude for the fun they gave to us that day.
Aiden Reiter
There were accusations laud by Elon at Donald Trump for a range of things we don’t need to go into, but they’re salacious. They’re salacious to say the least. But the point is, when that happened, it fell 14 per cent. And the reason they started this fight, allegedly, and it seems to be, is Elon being upset about the ‘big, beautiful budget bill’, which is what the Trump administration and the Republicans have been supporting. He has been rattling about its impacts on the deficit. And how it undoes the work of his Department of Governmental Efficiency.
Robert Armstrong
Yes.
Aiden Reiter
But more shrewd analysts also point out that this ‘big, beautiful budget bill’ is going to negatively impact Tesla.
Robert Armstrong
OK.
Aiden Reiter
So, very bearish estimates from JPMorgan have two parts of this really impacting Tesla. The first is the consumer EV tax credit. This bill proposal would unwind that consumer EV tax credit.
Robert Armstrong
So as it stands, you buy an electrical vehicle, you get a tax credit.
Aiden Reiter
Yeah. Government is supporting you in buying an electric vehicle over a gas vehicle. They estimate that that will knock Tesla’s operating earnings by 1.2bn, which is a lot given it was around 6bn last year.
Robert Armstrong
Each year, it takes that out every year.
Aiden Reiter
Yes, that’s the JPMorgan estimate.
Robert Armstrong
OK. And it’s like, as I remember, they’re earning like $8bn-ish, slash $7, $8bn-ish. I think in that range now.
Aiden Reiter
I believe it was six to eight. I can’t remember off the top of my head. And then it would also end a form of carbon tax credits, where if you are a manufacturer of automobiles and you are not exceeding emission standards, you get this tax credit. And then there’s this market for tax credits where you can sell it to other carmakers. And it would also end or limit that. And they estimate that will impact their earnings by 2bn.
Robert Armstrong
Now we’re up to 3bn or so of earnings out the window.
Aiden Reiter
They said 52 per cent of their operating earnings last year.
Robert Armstrong
What about . . . There’s none of the battery stuff. Tesla has this important battery business. As far as we know, the bill doesn’t affect any of that stuff.
Aiden Reiter
The bill does not; my understanding is that tariffs would.
Robert Armstrong
Yes, that’s another issue. So, number one, as kind of Elon and Tesla haters love to say, they get a lot of government subsidies, the Republican budget bill would cut them. This would have a major impact. But it’s interesting that if that’s true, I don’t know, do people think the bill is not gonna go through? Because you would think, if somebody was coming for as much as half of Tesla’s operating profit, the stock would be falling.
Aiden Reiter
Absolutely. And it actually didn’t really fall that much between the ‘big beautiful budget bill’ leaving the house and the Musk-Trump spat.
Robert Armstrong
So that is interesting just in itself.
Aiden Reiter
Right.
Robert Armstrong
Right, the market doesn’t seem really to be discounting the possibility that the government is gonna take all the goodies away from Tesla.
Aiden Reiter
It’s possible that’s in the mix.
Robert Armstrong
Yes.
Aiden Reiter
It’s possible that the Musk spat with Trump and the reason it fell 14 per cent now is that the market is starting to be attuned to, oh, he’s not gonna get special treatment or he’s gonna get these carve-outs or he’s not even gonna have sway over Republican senators.
Robert Armstrong
But it came back. The point is that the stock bounced right back up.
Aiden Reiter
When Musk reproached with Trump this week.
Robert Armstrong
Yes. The grovelling, which is what I take Elon to have done, I guess, you know, he said, I went too far. Which doesn’t sound like grovelling when I say it, but when somebody as bombastic as Elon says it and as self-assured as Elon says it, that counts for a major retreat. OK. We’ve been through the budget bill. Tariffs.
Aiden Reiter
Tariffs. We have very high tariffs on China, although, you know, there’s some theoretical trade deal going to be worked out, who knows? A lot of the battery supply chain is based in China. A lot of Tesla’s battery supply chain, in particular, is global, China and other places. You gotta get the metals from somewhere, I gotta assemble somewhere, etc, etc. That is a huge deal for Tesla. And any electric-car maker outside of China or outside of, you know, places where it’s easy to make it.
Robert Armstrong
Yeah.
Aiden Reiter
At the same time, a lot of the investments that were supporting battery making in the United States from the IRA, the Inflation Reduction Act . . .
Robert Armstrong
Yes, the Biden era.
Aiden Reiter
The Biden era . . . are not being renewed in this bill. It’s not like you’re seeing additional support for that industry in the future.
Robert Armstrong
OK, but again . . . I mean, of course, with the stock market, there’s no controlled experiments. So you never know what the stock price would have been had these things not been going on. But again, as the tariffs have come in place, you’re hard pressed to see their impact, kind of on a one-to-one basis, or even in a two-to-one or one-to-two basis in the stock prices of Tesla.
Aiden Reiter
Well, Tesla’s stock has gone up and down since ‘liberation day’. It’s now higher than it was when ‘liberation day’ hit. I think that’s fair to say for Tesla. I mean, other carmakers, you’re seeing it a little more in what their stocks are trading at. Interestingly, the big Tesla fall was not from ‘liberation day’ or tariffs. It was just from kind of the Doge backlash, right? So starting in January, February, Musk started muddling with the US federal government, and people started getting upset. We got rumours of declining sales in the US, declining sales in Europe, which wound up being true. And at the same time, people were starting to pare back how much of a benefit he might have actually gotten from the Trump election.
Robert Armstrong
Right.
Aiden Reiter
You’ll remember that in November to December, after Musk really threw in his lot with Trump, the stock just roared.
Robert Armstrong
So there’s kind of offsetting factors here. Clearly, as you’ve just described, it is the case that Musk’s relationship with Trump has value, on the one hand, for Tesla shareholders. But on the other hand, the question of partisanship in general, the fact that not only is Elon close to the president, that many people in America don’t have good feelings about, but as a political actor himself, people have mixed feelings about him. The electorate has mixed feelings about him. So there’s all these kind of personal factors that kind of pull in different directions. It’s good to be friends with the president. Maybe Republicans like him, but Democrats don’t, depending on how you feel about what’s been going on in the last couple of months. So, how does all that stuff kind of net out?
Aiden Reiter
Yeah, well, I think it’s important to take a step back and say that while all this fluctuation has been going on with the Trump-Musk relationship and with tariffs, Tesla has been struggling. Sales have been declining in the US and abroad.
Robert Armstrong
Yes.
Robert Armstrong
And one might say that is partially because of this partisanship, which you’re mentioning. So we’ve seen a big pick-up in the share of US EVs and Tesla EVs sold in Republican counties. There’s a very good paper by TD Cowen. There was like, oh, Republicans are making a bigger share of Tesla, but they’re only gaining a little bit, and Democrats are really pulling back.
Robert Armstrong
Yes. So, if I understand what you just said, on net, the partisanship cuts against Tesla. The small gain in Republican counties is more than offset by the large loss among Democratic counties.
Aiden Reiter
Yeah, and there’s been declines in the US on that reason. There’s been decline in Europe. Some might say it’s because Europeans don’t like the Trump administration, what Musk is doing. But on both, we also have to take it with a grain of salt, right? It’s a good theory, but there’s other stuff. Tariffs are sapping demand and or deferring demand. You have Chinese EVs, particularly outside the US, that are cheap and good competitors to Tesla. So there’s other things, partisanship might just be one of the pieces of the mix.
Robert Armstrong
Yeah.
Aiden Reiter
But there’s this interesting point made by TD Cowen that if you look at the most EV-buying counties in Texas that are red, they’ve had this huge surge. So part of what it could have been holding up the market’s expectation for Tesla was OK, well, you know, Democrats are going away, but if all counties in the US look like that one red county, then Republicans are gonna buy a lot of Teslas. They love Elon Musk. It’s a brand thing, etc.
Robert Armstrong
I will say, and this is just reading out of your article, so I’m not telling you anything you don’t know, but Wall Street has reached its own conclusion about this. You have this great chart in the newsletter about the consensus Wall Street estimates for the number of units of Tesla cars for 2026. In 2022, the Street expected 4mn Teslas to get sold. That’s steadily been working its way down. And now, it’s barely over two. So, estimates have been cut in half, and a good deal of that damage, perhaps, I don’t know, 500,000 units, declined in the estimates, is just in the last six months or something like that.
Aiden Reiter
Yeah, and you know that could partially be reflecting people not wanting to buy Tesla because of partisanship. And it also could partially be because of the other things we named, Chinese competition, you know, not a great US economy. But there’s also been some things at Tesla that have not been going super well. Tesla was supposed to launch a whole new stream of affordable cars, but that has been delayed indefinitely. Cybertrucks have not been the whopping success that they would have hoped.
Robert Armstrong
People don’t like those much.
Aiden Reiter
I mean, they’re polarising.
Robert Armstrong
Yeah, and you see a lot of images of car lots full of unbought Cybertrucks.
Aiden Reiter
I was driving in Connecticut recently, and I saw somebody that had a Cybertruck that had stickers on the side that said, let’s go to Mars. So there’s clearly some people who really love . . .
Robert Armstrong
(Laughs) Yes, Mars colonisation is a factor that we haven’t talked about, but I want to . . . You can go ahead.
Aiden Reiter
Bringing this together with a partisanship point, right? If you believe that, OK, Democrats are gonna decline, foreign sales are gonna decline, because of China, because of all these things, including disliking Musk, you’re hoping that Republicans will start buying more and more. But if Elon is no longer in a good relationship with the president or Republicans, that also cuts any optimism there.
Robert Armstrong
And that may help to explain the grovelling.
Aiden Reiter
Yes, absolutely.
Robert Armstrong
That’s where the bread was buttered, and he knew it. Now, something we’ve talked about on the show before that with Elon Musk, you can never neglect is the kind of brilliance premium. The idea that this entrepreneur, who’s done some — you have to agree — absolutely amazing things in his career, will pull more innovation rabbits out of his technological hat. And I guess the one that is getting the most attention right now is robotaxis. The autonomous robotaxi, the driverless car. So, how does that factor in optimism about that?
Aiden Reiter
I mean, theoretically, that’s another source of optimism for Tesla’s stock. Some people say that the way to view Tesla is not necessarily as a car company because that car company is not doing particularly well. It’s a car that’s funding this VC, that is Elon Musk, where he’s investing in these future technologies. In that case, you could actually justify Tesla’s really, really weighty valuations. He’s gonna invent the next great thing and he has all this cash flow coming in. But the robotaxis have not really materialised yet. They’re losing market share to Waymo into other competitors already. Just the other day, Musk said they’re going to unleash them in Austin, Texas, kind of for a trial run later this month, but there could still be major delays.
Robert Armstrong
It wouldn’t be the first time that Elon Musk has promised a product by a deadline that didn’t show up. That is for sure.
Aiden Reiter
And promised product by a deadline after coming under public fire for something totally unrelated.
Robert Armstrong
So let’s just review, I just want to kind of pull together some of these threads and just kind of tick off the list of stuff we’ve talked about so far. ‘Big, beautiful bill’, potentially very damaging to Tesla’s profits, but of course, we don’t know what bits will go through, and the question of whether he still has pull with the administration comes in there. Tariffs, potentially a drag on profits and or sales, as his battery supply chain in particular is very global.
Aiden Reiter
But on the tariffs point, he actually has, some would argue, an edge over his competitors in that a lot of Teslas sold in the US, in particular, are assembled in the US.
Robert Armstrong
Yes.
Aiden Reiter
Not Mexico or Canada.
Robert Armstrong
That’s a plus-minus thing. Partisanship helps him in some places, hurts him in others, but as of right now, it looks like it’s hurting more than helping. And if he falls out with Trump, that it’s just two black marks on him. The relationship with Trump, of course, casting a shadow all over all of this. In any case, global competition is depressing expectations for Tesla sales along with these other factors. And finally, the robotaxi is a question mark.
Aiden, we’ve been talking about a lot of heterogeneous factors that might explain the movements, the helter-skelter movements of Tesla stocks. And frankly, we have been struggling to make them kind of map on to the stock price. Is there a way we can sum up what brings all these pieces together?
Aiden Reiter
I would argue the unifying theory of what has been moving Tesla, at least in the last six months, has been the relationship with the government. Specifically, Trump’s relationship with Musk, right? You saw the stock skyrocket after the election, and then this 14 per cent dip last week suggests that people thought there was a very heavy premium that Musk was getting from Trump, and we’ve talked about the various . . .
Robert Armstrong
Bits and pieces of that.
Aiden Reiter
Even taking a further step back too, Tesla has been reliant upon the government for a lot of its operating earnings. It gets so much money and so much help from consumer tax credits, it gets so much help from this carbon tax credit market. And in the past, if you’ll remember, in the Obama administration, they got some very necessary support in their early stages from the US government.
Robert Armstrong
And the support from the Biden administration. It’s like, which president does Tesla rely on the most is an open question, whether it’s Obama or Biden or Trump.
Aiden Reiter
Yeah, I mean, the stock price has, you know, relied on the Trump-Musk relationship, but have the earnings? No, the earnings have been taking a hit.
Robert Armstrong
Interesting. I mean, I would take the other side of that argument in the following sense that much like Trump himself, Elon’s superpower — and therefore the driving force behind the stock — is for some reason, this guy draws very strong emotions out of people. And he has built a cult for himself among investors that this stock is kind of everything that it is, the bet on the future. And so what matters is whether that spell is broken. And if his spell over investors is broken, all the government help in the world is gonna be no good to him.
Listeners, we have to break the spell, too. We will be right back in a minute with Long and Short.
[MUSIC PLAYING]Listeners, welcome back. This is Long and Short, which is the portion of the show where we go long on things we like and we go short on things we don’t like. And I am long, short shorts. I think a rather modest inseam in your summer shorts this summer is the way to go. I think legs are attractive things. I think long shorts that kind of come down towards the knees are baggy and awkward. I think the whole point of wearing shorts is being cool anyway, so why would you have shorts that are almost pants? So again, table-banging long on short shorts.
Aiden Reiter
What’s your ideal inseam?
Robert Armstrong
I guess, I don’t know, like four inches, maybe.
Aiden Reiter
Oh yeah, it’s pretty short.
Robert Armstrong
Yeah, you know, four or five inches, something like that.
Aiden Reiter
Respect.
Robert Armstrong
OK, right on. Of course, I have very, very beautiful legs, Aiden. Which is something you may not know about me, as I tend to wear long pants to work. Aiden, do you have a long or a short for us?
Aiden Reiter
I do. I am long the copper price.
Robert Armstrong
Wow.
Aiden Reiter
Copper prices have been surging in the US and they’re also up in the rest of the world. There’s some fundamental weird things going on in China with a shortage in some of the raw inputs, but also there’s a rumour that there could be a tariff by the Trump administration on copper. I actually think this is one of the few areas where a tariff makes sense. I think tariffs for national security purposes are important, provided you invest in the industry to get it up and running. I’m not sure this administration will do that part. But, you know, the US has mines that could theoretically produce copper. We have idle capacity, industrial capacity. And it makes sense to have copper be made in the US with clean energy and with AI. So, you know, with the right pieces in place, I actually am supportive of the tariff and long the copper price.
Robert Armstrong
Of course, as an OG tariff hater, I have to disagree with that. But I won’t go into the details. Listeners, we will be back in your feed next Tuesday. And until then, wear short shorts and be cool.
Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn, and Natalie Sadler.
FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com/unhedgedoffer. I’m Rob Armstrong. Thanks for listening.
[MUSIC PLAYING]Source link
