Did Elon Musk’s support for Donald Trump backfire?

Tesla is hurtling toward an AI-driven future. Yet the future, especially of electric vehices (EVs), hangs not only on brute-force technology – but also on the dance between domestic and geopolitics.

Tesla's outspoken and controversial CEO Elon Musk is one of the tech champs who, following the July 14 assassination bid on former US President Donald Trump, backed the Republican leader's path back to the White House.

The tech billionaire, who has mercilessly mocked US President Joe Biden due to the latter's age, later denied a reported $45 million pledge he made for the Trump campaign. He joins a growing list of billionaires and moneyed Americans backing Trump.

Musk's net worth recently soared to $274 billion after Tesla stock's 10-day stock climb as company shares have risen 44 per cent since late June. Analysts say his AI push, including the faster cadence of iterations of full self driving (FSD, now at V12.5) software, could see his fortune climb to epic heights.

Shock announcement

Then, back on the campaign trail, Trump made a bombshell announcement: he vowed to scrap, on Day 1 of his presidency, the US Inflation Reduction Act (IRA), including EV susbidies President Biden fought hard for with strong bipartisan support.

Musk, in reaction, told investors during the Tuesday (July 23) earnings call: “That would be devastating for our competitors.” He’s confident such a move would impact Tesla only “slightly”, and pointed out that it may actually help the company in the long run.

Critics point out that any backpedalling on IRA, or holding on to the internal combustion engine (ICE) era longer than is necessary, could further weaken America's already-weak renewable energy standing, while its gas-guzzling culture leaves it more vulnerable to oil price shocks.

This indicates the craze over EVs, and an AI-driven future remains a volatile one. It's a trend closely followed by number cruchers, keen to pocket windfall profits. 

Given the slowdown in EV sales and concerns over repair costs, Tesla's renewed focus on AI marks a make-or-break moment, say analysts.

While naysayers state it's a pie-in-sky that will never achieve the desired  safety level, another camp, led by ARK Invest’s Cathy Wood, expects Tesla’s AI drive as its biggest “moat”, or competitive advantage that will mint more money.

Wood has now made an even bolder prediction: Tesla's stock price would hit a staggering $2,600 by 2029. That's a ten-fold increase from the Tuesday (July 23) close of $246.38, down 5.13 per cent from $254.41 on Monday (July 22). Wood estimates that Tesla would be valued at an absurd $8.3 trillion (by 2029), thanks to the spike in non-automotive profit, including robots, energy storage and software. 

Her bullish outlook stands in stark contrast to Tesla's declining earnings per share (EPS). Analysts predict EPS to fall to $2.41 in 2024, down from $7.07 in 2022. Despite this downward trend, Wood's outsized bet on Tesla hinges on the company's potential to dominate the autonomous driving market.

These past few days, however, Tesla faced a number of speed bumps.

Late on Tuesday, as Tesla earnings sank more than 40 per cent, despite above-expectations sales figures, Musk ran an X poll, asking his 190.6 million followers: “Should Tesla invest $5B into @xAI, assuming the valuation is set by several credible outside investors?”

Dissatisfaction

Meanwhile, some owners who switched to EVs have started looking back at petrol. Why?

In a word: Dissatisfaction.

A global survey shows several customer concerns, including a lack of charging stations, high costs, unrealistic range/frequent charging stops, the inability to charge at home (due to apartment living), the stress of managing charging needs, and limitations on mobility due to charging requirements.

Add to this the challenge and dissatisfaction over servicing of EVs, with limited technicians, and despite long-term warranties on them offered by manufacturers.

The study mostly focussed on US consumers, but dissatisfaction was present globally. Japan had the highest satisfaction rate (only 13 per cent dissatisfied). Australia followed the US in dissatisfaction rates, exceeding even the US numbers.

Reversing EV trend?

Addressing concerns about charging infrastructure and ownership costs are key to the widespread EV adoption, according to a McKinsey & Co. report.

The McKinsey Mobility Consumer Pulse presentation released in June 2024 indicated that 46 per cent of EV owners in the US are “very” likely to switch back to gas-powered vehicles.

The data is based on responses from nearly 37,000 participants who own EVs, but the US results are what surprised the company that conducted the study.

A total of 35 percent of the study's global respondents said they would want to switch back to gas-powered vehicles because charging stations are 'not yet' good enough.

On top of that, 34 percent of participants voiced their concern about the high total ownership cost, while another 32 percent were worried about frequent charging stops during long-distance trips.

'I didn't expect that, I thought, "Once an EV buyer, always an EV buyer,"' the head of McKinsey's Center for Future Mobility, Philipp Kampshoff, told Automotive News.

The US ranked second out of the 9 countries in the study that had the most EV users looking to switch back, with the biggest reason being the low approval rating of EV cars' charging infrastructure.

Australia was the only location with a higher percentage of EV owners looking to switch back to gas-powered cars than the US

Then there’s also the matter of EV catching fire due to battery “thermal runaway” issues.

Until solutions are rolled out, EVs could be a rich man’s fancy and expensive way to get from A to B, while the rest of humanity sticks to internal combustion engines.

Musk recently announced the launch of the “Memphis Supercluster” training, involving 100,000 liquid-cooled Nvidia H100 graphics processing units on a single “RDMA fabric”. Touted as the “most powerful AI training cluster in the world today”, he said the cluster will train what he claimed to be “the world’s most powerful AI by every metric by December this year”.  

Riding on AI ambitions

Musk's influence over Tesla's stock price has been undeniable. His ability to generate excitement around the company's AI and autonomous driving capabilities has propelled its valuation to stratospheric heights.

Investors scrutinised Tesla's performance against its lofty valuation, amid rising number of customer complaints.

Meanwhile, the delayed robotaxi unveiling adds further uncertainty. The market eagerly awaits tangible progress in this crucial area. Tesla fanboys dismiss the delay as part of Musk’s mark – “making the impossible late”.

Even by Tesla's own admission, the deployment of Robotaxis (if they do achieve the desired safety level on public roads in record time) depends on advancements in technology that's still not quite there, and regulatory approval.

And while Musk continues to drive the company forward, delivering on the promise of AI and autonomous driving will be essential to sustain its current market position.

Supercluster computer

This is where brute-force computing comes in. Musk recently heralded the launch of the “Memphis Supercluster” training, involving 100,000 liquid-cooled Nvidia H100 graphics processing units (GPUS) on a single “RDMA fabric”, touted as the “most powerful AI training cluster in the world today”.

The cluster will train what he claimed to be “the world’s most powerful AI by every metric by December this year”. Would this computing power deliver on its promise? It's too early to say.

Tesla has made significant progress on vision-based (8 cameras) self-driving software. Ashok Elluswamy, its head of Autopilot/AI, said the software has been "trained" to be safe and smooth enough that it won't spill an open cup of coffee while on FSD.

On Tuesday, the company announced that a number of major car makers (known as OEMs) have shown interest in licensing FSD. Potentially, this could translate to an exciting future where Tesla becomes both the Microsoft and Apple of the automobile world, with yet untold upshots.

And while a Trump Presidency could end IRA, Musk stressed that Tesla’s value is highly dependent on autonomy. Responding to a question during the same call, Musk said: If investors do not believe Tesla will solve self-driving, they should sell their stock.

Ultimately, Tesla's future value depends on its ability to balance investor expectations with present realities.