Tesla (TSLA) will report earnings Wednesday after the bell. Elon Musk generally leads the company’s earnings calls, however this is the first since his appointment as the head of the Department of Government Efficiency (DOGE) in President Donald Trump’s administration. While business leaders have held advisory roles or influenced policy externally, assuming a formal position within the executive branch while running several large companies is, as far as I know, unprecedented. The government certainly could benefit from leveraging Elon’s business experience to shape economic policy and streamline government operations. Less clear is whether Tesla shareholders will benefit from the company’s CEO dedicating significant time to DC. According to the New York Times, Elon will have office space in the Eisenhower Executive Office building adjacent to the West Wing of the White House. Presumably, more influence is better than less, and Elon has the President’s ear. This could be a positive for his companies with large government contracts. However, President Trump doesn’t favor all government policies that support Tesla. He has already reversed directives that encourage the adoption of EVs. The bull case for Tesla hinges primarily on three drivers: EV Sales – The company can beat expectations on vehicle sales with the newly redesigned Model Y and Cybertruck. It is the only US EV company selling EVs profitably, and it outsells all its EV competitors combined. A growing addressable market, the best market share by far, and the best industry margins are quite the triad in auto manufacturing. Tesla is valued as a technology business because of its industry-leading FSD data and technology, AI, and robotics. Additionally, the company’s energy storage solutions are profitable and growing fast. If the company’s Q4 storage revenue meets just over $3 billion expectations, that would represent more than 100% YoY revenue growth for the segment, vs. just 5.5% anticipated YoY automotive revenue growth. Elon Musk is one of the most important entrepreneurs in history, and shareholders are justifiably betting on his unique abilities to deliver. Indeed, both Elon and Tesla are peerless, but what is the appropriate valuation to assign that exceptionalism? Volkswagen is trading 4 times FY 2025 earnings estimates, General Motors about 5 times, Ford about 6.3 times, and Toyota about 8.8 times. Tesla, by contrast, is trading > 120 times forward earnings. If those numbers are hard to comprehend, how about this? Tesla’s $1.3 trillion market capitalization is double that of GM, Ford, Toyota, Stellantis, Volkswagen, Mercedes Benz and BYD combined. The trade Tesla is one of the best-performing stocks since its June 2010 IPO. However, that colossal run has encountered periodic drawdowns. Since the all-time high on December 18, Tesla has underperformed the consumer discretionary sector by about 9% and the S & P 500 by about 12%. Tesla’s share price has moved more than 12% following earnings over the last eight reported quarters. The smallest earnings-related move was 9.3%, yet now, options prices imply a move of “just” 7.65% — a massive move for most companies but relatively modest given Tesla’s history. A trader speculating on additional relative weakness following earnings could purchase a short-dated downside put spread , such as the weekly January 31st $390/$350. Sell TSLA Jan. 31 $350 call Buy TSLA Jan. 31 $390 call This trade would also be a short-term hedge for those holding Tesla shares. However, the valuation might be difficult to sustain if shareholders become concerned that Elon focuses more on Washington, DC than DC fast charging. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
