Tesla's share price surged by 7% early on a Monday morning.
Tesla (TSLA 4.34%) saw a 7% surge by 10 a.m. ET on Monday following reports from Bloomberg that the upcoming Trump administration is contemplating establishing a "federal regulatory framework for fully autonomous vehicles."
Elon Musk, CEO, has consistently emphasized the significance of artificial intelligence (AI) and autonomous driving technology in shaping Tesla's future development. Investors are optimistic that this federal backing could transform into a lucrative investment opportunity.
Factors fueling Tesla's stock surge
Tesla is renowned for manufacturing electric vehicles (EVs). Regrettably, the profit margins for EVs have deteriorated as early enthusiasts have made their purchases, and the market demand for alternative EV options has decreased. As a result, Tesla's gross margin has declined from over 25% in 2021 and 2022 (approximately doubly what Ford and GM were making) to over 18% in the last 12 months, as indicated by data from S&P Global Market Intelligence. With increasing competition emerging as more corporations enter the EV market, it is unlikely that Tesla's EV business alone will restore its former profit margins.
However, if Tesla manages to establish a successful autonomous vehicle business, this would potentially pave the way for higher profitability, through software licensing and rental fees for fleets of new Cybercabs and Robovans.
Is regulation beneficial or detrimental for Tesla?
Elon Musk has been a proponent of Trump's presidential campaign, and investors seem to anticipate that this support will translate into regulatory decisions that favor Tesla. Musk has advocated for federal regulation in the past, rather than the current mix of state-by-state rules, and a framework for autonomous vehicle operation would offer Tesla a clear guideline while simultaneously imposing regulatory obligations on the industry. Larger, better-funded corporations like Tesla would likely have a competitive edge in such a situation.
Nonetheless, the specifics of this regulation remain unclear, whether emanating from the National Highway Traffic Safety Administration (which Trump would have more influence over) or Los Angeles-style laws passed by Congress (with less predictable outcomes). For now, investors are advised to remain patient and observe the development of this new policy proposal.
The investors' optimism towards Tesla could be fueled by the potential of the upcoming Trump administration's regulatory framework for fully autonomous vehicles, seeing it as a lucrative investment opportunity in the field of finance, particularly in investing in autonomous vehicle technology.
Elon Musk's advocacy for federal regulation in the autonomous vehicle sector could further solidify Tesla's position in the market, leveraging its strength in finance to potentially capitalize on software licensing and rental fees for its Cybercabs and Robovans if the regulations are favorable.
