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Pushkin. Tesla shares are up 14% over the last week. On the other hand, they're down 10% over the last three weeks. But on the other hand, they're up 84% over the last year. And if you bought Tesla shares...
In October of 2021, they are up 0% 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 Network.
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, Aidan Reiter. Aidan, it's good to have you back on the show. It's good to be back. I'm not sure I've ever been called an Elon Musk whisperer, nor am I sure I was. Well, you're what passes for an Elon Musk expert around here, Aidan.
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 in a way that some stocks do. 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. 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? Sure.
Maybe it's worth taking a step back. While it's up 14% this week, that's because it fell 14% on one day last week. Exactly. And that came when Elon Musk and Donald Trump had this huge, huge Twitter slash truth social spat. One of the most amusing internet days we've had in a long time. So I think the nation owes them both a great debt of gratitude.
Yes, there was. For the fun they gave to us that day. There were accusations lobbed by Elon at Donald Trump for a range of things we don't need to go into, but they're salacious. This is a family show. They're salacious, to say the least. But the point is, when that happened, it fell 14%. 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. Yes. He has been rattling about its impacts on the deficit. Yeah. And how it undoes the work of his Department of Governmental Efficiency. Yes. But more shrewd analysts also point out that this big, beautiful budget bill is going to negatively impact Tesla. Okay.
So very bearish estimates from J.P. Morgan 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. So as it stands, you buy an electrical vehicle, you get a tax credit.
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 1.2 billion, which is a lot, given it was around 6 billion last year. It takes that out every year. Yes. That's the JPMorgan estimate. Okay. And it's like, as I remember, they're earning like 8 billion-ish last 7, 8 billion-ish? Yeah. Something in that range now. I believe it was 6 to 8. 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 admission standards, you get this tax credit. And then there's this market for tax credits where you can sell it to other car makers. And it would also...
And or limit that. Okay. And they estimate that will impact their earnings by 2 billion. Now we're up to 3 billion or so of earnings out the window. They said 52% of their operating earnings last year. 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. The bill does not. My understanding is the tariffs would. 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's not going to 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. Absolutely. And it actually didn't really fall that much between the big, beautiful budget bill leaving the house and the Musk-Trump spat. So that is interesting just in itself. Right. The market doesn't seem really to be discounting the possibility that the government is going to take all the goodies away from Tesla. It's possible that's in the mix. Yes. It's possible that
The Musk spat with Trump, and the reason it fell 14% now is that the market is starting to be attuned to, oh, he's not going to get special treatment, or he's not going to get these carve-outs, or he's not even going to have sway over Republican senators. But it came back. The point is that the stock bounced right back up. When Musk reproached with Trump this week. Yes. The groveling, which is what I take Elon to have done, I guess, you know, he said, I went too far.
which doesn't sound like groveling 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.
Okay. We've been through the budget bill. Tariffs. Tariffs. We have very high tariffs on China, although 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. Got to get the metals from somewhere, got to assemble somewhere, et cetera, et cetera. That is a huge deal for Tesla.
And any electric car maker outside of China or outside of places where it's easy to make it. 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- Yes, the Biden era. 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. Okay.
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 price of Tesla? Well, Tesla 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 car makers, 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 the Doge backlash. Yes. Right? So starting in January, February, Musk started
muddling with the US federal government and people started getting upset. We got rumors 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. You'll remember that in November to December, after Musk really threw in his lot with Trump, the stock just roared. 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? 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. Yes. Sales have been declining in the US and abroad. Yes. And one might say that is partially because of this partisanship, which you're mentioning. So we've seen a big pickup
in the share of US EVs and Tesla EVs sold in Republican counties. There's a very good paper by T.D. Cowan. There was like, oh, Republicans are making a bigger share of Tesla. Yes. But they're only gaining a little bit and Democrats are really pulling back. 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. 0:02:00.0 S1: Yeah, and there's been declines in the US on that reason. There's been declines 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. But there's this interesting point made by TD Callan 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 could have been holding up the market's expectation for Tesla was, okay, well, Democrats are going away, but if all counties in the US look like that one red county...
Yes. Then Republicans are going to buy a lot of Teslas. They love Elon Musk. It's a brand thing, et cetera. 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 4 million Teslas to get sold. That's steadily been working its way down. 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 decline in the estimates is just in the last six months or something like that. Yeah. And 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, not 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. People don't like those much. I mean, they're polarizing. Yeah. And you see a lot of images of car lots full of unbought cars.
Cybertrucks. 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 it. Yes. Mars colonization is a factor that we haven't talked about, but I want to- Just to bring this together with a partisanship point, right? If you believe that, okay, Democrats are going to decline, foreign sales are going to decline because of China, because of all these things, including dislike of Musk, you're
You're hoping that Republicans will start buying more and more. Yes. But if Elon is no longer in a good relationship with the president or Republicans, that also cuts any optimism there. Yeah. And that may help to explain the groveling. Yes, absolutely. 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 negotiate.
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 robo-taxis. The autonomous robo-taxi, the driverless car. So how does that factor in optimism about that? I mean, theoretically, that's another source of optimism for Tesla 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 company that's funding this VC that is Elon Musk. Yes. Where he's investing in these future technologies. Yeah. In that case, you could actually justify Tesla's really, really weighty valuations. He's going to invent the next great thing and he has all this cash flow coming in.
But the robo taxis have not really materialized yet. They're losing market share to Waymo and to 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. 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. And promised a product by a deadline after coming under public fire for something totally unrelated. Hmm.
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 their tariffs.
potentially a drag on profits and/or sales as his battery supply chain in particular is very global. But on the tariffs point, he actually has somewhat argue an edge over his competitors and that a lot of Teslas sold in the US in particular are assembled in the US. Yes. Not Mexico or Canada. So 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 robo-taxi is a question mark.
Aidan, 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've been struggling to make them kind of map onto the stock price. Is there a way we can sum up what brings all these pieces together?
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. You saw the stock skyrocket after the election, and then this 14% dip.
last week suggests that people thought there was a very heavy premium that Trump was getting, Musk was getting from Trump. And we've talked about the various bits and pieces of that. Even taking a further step back to Tesla has been reliant upon the government for a lot of its operating earnings. Yes. Right. 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 U.S. government.
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. Yeah. I mean, the stock price has relied on the Trump-Musk relationship, but have the earnings? No, the earnings have been taking a hit. 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 going to 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.
Probably the most pressing concern that I see with regards to the investable quality of our industry is that it's so, so tied to fuel price. So you'll see that as fuel prices rise, our stocks go down and vice versa. It's just very difficult for people to manage through. But we have seen sustained periods of growth over the last decade, and a few of the airlines have done very well. To learn more about the evolution and investment opportunities of the airline industry, subscribe to PGM's The Outthinking Investor.
Past performance is not a guarantee of future results. Listeners, welcome back. This is Long and Short, which is the portion of the show where we go long things we like and we go short things we don't like. And I...
and 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. What's your ideal inseam? I guess, I don't know, like four inches maybe? Oh yeah, it's pretty short. Yeah, you know, four or five inches, something like that. Respect. Okay, right on.
Of course, I have very, very beautiful legs, Aidan, which is something you may not know about me as I tend to wear long pants to work. Aidan, do you have a long or a short for us? I do. I am long the copper price. Wow. Copper prices have been surging in the US and they're also up in the rest of the world. There are some fundamental weird things going on in China with a shortage in some of the raw inputs, but also there's a rumor 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 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.
With the right pieces in place, I actually am supportive of the tariff and long the copper price. 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 Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta 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 slash unhedged offer.
I'm Rob Armstrong. Thanks for listening.