What makes Tesla run?

Rob Armstrong (0:06)

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. 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 (1:05)

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.

Rob Armstrong (1:11)

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 in the way that some stocks do.

Aiden Reiter (1:31)

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.

Rob Armstrong (1:38)

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 (2:00)

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.

Rob Armstrong (2:08)

Exactly.

Aiden Reiter (2:08)

Yeah. And that came when Elon Musk and Donald Trump had this huge, huge Twitter slash truth social spat.

Rob Armstrong (2:15)

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.

Aiden Reiter (2:22)

Yes, there was...

Rob Armstrong (2:22)

For the fun they gave to us that day.

Aiden Reiter (2:24)

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%. 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.

But more shrewd analysts also point out that this big, beautiful budget bill is going to negatively impact Tesla. So very bearish estimates from JP 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.

Rob Armstrong (3:14)

So as it stands, you buy an electrical vehicle, you get a tax credit.

Aiden Reiter (3:18)

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.

Rob Armstrong (3:30)

It takes that out every year.

Aiden Reiter (3:32)

Yes, that's the JP Morgan estimate.

Rob Armstrong (3:33)

And it's like as I remember, they're earning like 8 billionish, last 7, 8 billionish.

Aiden Reiter (3:38)

Yeah.

Rob Armstrong (3:38)

Something in that range now.

Aiden Reiter (3:40)

I believe it was 6 to 8 I can't remember, now we're 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 could sell it to other car makers. And it would also end or limit that.

Rob Armstrong (3:59)

Okay.

Aiden Reiter (4:00)

And they estimate that will impact their earnings by 2 billion.

Rob Armstrong (4:04)

Now we're up to 3 billion or so. Of earnings out the window.

Aiden Reiter (4:07)

They said 52% of their operating earnings last year.

Rob Armstrong (4:11)

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 (4:17)

The bill does not, my understanding is the tariffs would.