'Elon Premium' boosts Tesla, but also presents risk, says Barclays

Investing.com -- The recent rally in Tesla (NASDAQ:TSLA ) shares serves as a reminder of the significant “Elon Premium” in the carmaker’s stock, Barclays (LON:BARC ) strategists said in a note.

Tesla stock surged nearly 40% following Donald Trump’s victory in the US election, before settling with a 28% gain. According to Barclays, the rally “was in many ways an expression of the value of Elon Musk to Tesla.”

This so-called Elon Premium underlines the value investors place on Musk’s influence but also highlights elevated risks tied to his centrality within the company.

Barclays strategists note that the post-election environment has amplified Tesla's "narrative command." While fundamentals remain unchanged, the Trump administration’s policies may yield mixed outcomes.

Potential regulatory shifts could pressure Tesla’s US sales, particularly the anticipated removal of the $7,500 EV tax credit, slated for 2026. Tesla might, however, consolidate market share as the only automaker profitably selling EVs in the US.

“Elon Musk's role in the election and in President-elect Donald Trump’s inner circle further solidifies him as potentially one of the most powerful people in the world, and is a reminder of the “tough to bet against him” thesis,” strategists led by Dan Levy wrote.

“While this certainly furthers the “key man risk” of Elon Musk at Tesla, it also reinforces the notion of an Elon Musk premium for the stock,” they added.

The Elon Premium is described as a key factor behind Tesla’s valuation.

“Tesla is the only Elon Musk company that is publicly traded and it has often served as a proxy for an investment in Musk himself,” Barclays notes.

It points out that the Elon Premium now represents the highest relative portion of Tesla’s value in the past five years.

“While there is still very clearly a substantial amount of technical and operational talent inside of Tesla, at this point it appears Musk is likely as central as ever to Tesla’s strategy, and even more central to the Tesla narrative,’ the note states.

According to Barclays, autonomous vehicle (AV) regulations might offer a silver lining for the automaker. Reports of the Trump administration potentially easing self-driving standards could benefit Tesla’s AV initiatives. Yet, the bank warns that Tesla’s technical progress might become the gating factor, with competitors like Waymo further along in deploying driverless technology.

Barclays also highlights “cracks” in Tesla’s fundamentals, highlighting the stock’s staggering 100x next twelve months (NTM) price-to-earnings (P/E) ratio.

This, alongside challenges on AV uptake, could at some point “reverse the stock’s performance,” strategists caution. But for now, with fundamentals being steady and the premium narrative in place, “it may be tough to crack the stock,” they concluded.

The firm reiterated an Equal Weight rating on Tesla stock and raised the price target from $235 to $270.

Source: Investing.com