Tesla CEO Elon Musk has allied himself with the president-elect, but is that enough to bring back retail investors?
Elon Musk has become a close ally of President-elect Donald Trump, but is that enough to bring retail investors back to Tesla Inc.?
It wasn't that long ago when the electric-vehicle company's stock $(TSLA)$ was synonymous with retail investors. Individuals piled into Tesla in 2020, and shares of the company ended that year over 740% higher.
Retail-investor support for Tesla continued over the following years. the company competed with Apple Inc. $(AAPL)$ for the title of most popular stock among retail investors, and finally surpassed the iPhone maker in 2022.
But while Tesla remains a popular stock among retail investors, the excitement around it has waned in 2024. Trading volume is lower than it was in 2023, and shares are still down roughly 23% from their closing high of $409.97, reached Nov. 4, 2021.
On top of that, Tesla is no longer the most popular stock among retail investors. That accolade belongs to semiconductor manufacturer Nvidia Corp. $(NVDA)$, which passed Tesla to become retail's most traded stock earlier this year.
The question remains whether Trump being in office will help Tesla. After all, Chief Executive Musk reportedly spent $130 million to help him get elected.
Shares of Tesla jumped following Trump's election win, ending 14.8% higher on the day after Election Day.
"In our view, TSLA and CEO Elon Musk are perhaps the biggest winners from the election result, and we believe Trump's victory will help expedite regulatory approval of the company's autonomous driving technology," Garrett Nelson, vice president and senior equity analyst at CFRA Research, wrote in a note.
"Depending on the outcome of the House [elections], we also see risks to current electric-vehicle tax credits from changes to existing tax legislation, which we think will widen TSLA's competitive moat by making competing EV models even more uneconomic, as we believe TSLA is the only profitable manufacturer of EVs," Nelson added. "For these reasons, we now view TSLA shares as deserving of higher multiples, but acknowledge challenges in the near term."
Throughout 2024, retail-investor buying patterns loosely followed Tesla's share performance. Retail investors bought fewer Tesla shares in the first half of the year as the stock was trending downwards, lagging behind other "Magnificent Seven" stocks. They also tamped down buying following the company's disappointing robotaxi event in early October.
But if political tailwinds push Tesla's shares higher, retail investors could try to chase those gains. After trailing the returns of the S&P 500 index SPX for most of the year, Tesla finally caught up in the days following the election.
However, Nvidia still remained the most bought stock for retail investors, despite Tesla's recent surge. Whether that continues not only depends on Tesla's future performance, but also Nvidia's.
"It's hard to say whether mom-and-pop traders will decisively prefer one over the other in the coming months. Anticipation around Nvidia's earnings call on Nov. 21 could see retail traders prioritizing the semiconductor juggernaut," analysts from Vanda Research wrote in a note. "Another blowout report could keep individuals focused on NVDA. In contrast, a consensus-matching result could turn into a 'sell the news' event, allowing TSLA to regain the top spot among retail purchases."
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