Will Musk’s stunt backfire on Tesla

During his speech at the presidential parade following
Donald Trump’s inauguration, Elon Musk made a suspiciously familiar gesture,
which the telecast quickly cut off. But, as always, the Internet never forgets,
and the video quickly spread through social media.

In the past (under the previous administration), such an
incident would probably have sparked a major scandal. However, that does not
seem to be the case this time. Perhaps Trump’s decision to restore free speech
and lift censorship, or Musk’s new role within the government, could be playing
a role.

As for the markets, judging by pre-market movements (Tesla stock up $2.30),
investors don’t seem to be expecting any surprises. Not even canceling
“green” initiatives, like tax incentives for
electric vehicles, which could affect demand for Tesla’s products, has shaken
their confidence.

Nevertheless, it is something worth worrying about. For
example, Tesla’s sales in Germany fell 41% year-on-year after the incentives
were cut and it is unclear why the outcome should be any different this time.
Expectations that Cybercab and the humanoid robot Optimus will offset the
negative effect also remain low.

The market optimism could be related to expectations that
Musk could act as a bridge between China and the Trump administration regarding
economic and trade relations, ultimately
benefiting Tesla in China. Musk has stated that Tesla
is willing to increase investments and expand its collaboration with China.

The problem is that the friendship between Musk, who now heads the
Department of Government Efficiency and the new president may
not last long. If that happens, instead of listening to Musk’s advice, the
dynamic could shift in the opposite direction. But, of course, that’s nothing
more than speculation.

Not surprisingly, analysts are watching Tesla shares
cautiously, with some even expecting a major correction. For example, Wells
Fargo believes Tesla’s autonomous cabs won’t be enough to offset the company’s
weak fundamentals this year, but it has maintained its Underweight rating.

The bank predicts Tesla shares could drop nearly 70% to
$125 over the next year as the company struggles to increase deliveries despite
price cuts (it has already started offering discounts on new Cybertruck models)
and faces intense competition from Chinese electric vehicle manufacturers.

Last but not least, it’s important to remember that the
company’s stock is already far from cheap, with a P/E ratio of around 113,
which shows how much investors are willing to pay for the company’s earnings.
In comparison, Volkswagen’s P/E ratio is just 3.96, and for Toyota around 9,06.

This article was written by FL Contributors at www.forexlive.com.