Tesla(NASDAQ: TSLA) CEO Elon Musk bet on Donald Trump winning the November election, and investors embraced Tesla after realizing he made the right bet. The election results helped Tesla shares rise sharply by the end of the year. But with these US election results comes a mixed picture electric vehicle (EV) sector.
According to the data provided by S&P Global Market Intelligenceshares of the leading EV ended December up 17%. But shares of electric vehicle charging companies haven’t fared so well. ChargePoint Holdings(NYSE: CHPT) and EVgo(NASDAQ: EVGO) shares fell by 12.3% and 37.8%, respectively.
Investors looking to dive into the EV space should understand what has led to this disparity and what could happen as the market moves into 2025.
That year-end push helped Tesla stock finish 2024 with a market gain of about 62%. The stock even hit record highs before pulling back in late December. Much of Tesla’s 2024 returns came after the US election in early November. CEO Elon Musk endorsed Donald Trump and now holds an advisory position to the president-elect.
Investors think this could lead to an accelerated regulatory process for approving the use fully autonomous vehicles nationwide. Tesla has ambitions to create a fleet of Cybercabs that would currently be regulated at the state level. To develop and improve its self-driving software, the company has invested heavily in artificial intelligence infrastructure to tap into the vast amount of data from electric vehicles already on the road.
A fleet of commercial self-driving vehicles isn’t the only place Tesla could see a lucrative return on those investments. Many existing Tesla owners could be tempted to pay for its full self-driving software once it’s perfected. This could bring additional high-margin revenues to the company.
A potentially more favorable regulatory environment for self-driving car development is just one benefit the new administration could bring to Tesla’s business. Existing tax credits for electric vehicles could be phased out, and ironically, that could help Tesla because it’s already very profitable. Other electric vehicle manufacturers could cede even more market share to Tesla if their entry into the electric vehicle market leads to ever-increasing losses.
Because of this, the shares of other companies from the EV sector fell in December. Charging infrastructure companies such as ChargePoint and EVgo are counting on the continued expansion of EV sales to provide enough scale to eventually generate profitable revenue from charging station infrastructure investments.
However, this was not the only reason why EVgo shares fell by almost 40%. In December, EVgo closed on a previously announced $1.25 billion loan from the US Department of Energy. Shares have already jumped following the announcement as the funding will help its efforts to continue expanding its charging network.
But less than a week after the loan closed, the company announced a secondary offering of its common stock at a price well below the stock price at the time. The offer was made in favor of the main existing shareholder, enabling the sale of his shares, which put downward pressure on EVgo shares.
Network charging companies now also offer Tesla EV access to their stations. But Tesla’s Supercharger network is still the dominant charging infrastructure in North America. This prompted investors to sell stakes in companies building competing networks.
EVgo and ChargePoint are also banking on significant growth in electric vehicle penetration in the coming years. The business could collapse without continued growth in the popularity of electric vehicles, but Tesla already has a profitable business and new products on the way.
Its energy storage segment more than doubled deployments last year, and a new megafactory in China will further boost that business in 2025. A new, lower-priced vehicle could also be announced this year. Humanoid robotics may be more distant, but could also provide future contributions.
On January 29, Tesla will report earnings for the fourth quarter and the full year 2024. Then the company could provide a better insight into what is coming this year. While the risks remain high for Tesla stock, the future potential is enough to justify at least a small position.
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Howard Smith has positions at ChargePoint, EVgo and Tesla. The Motley Fool has positions and recommends Tesla. The Motley Fool has a disclosure policy.
