Tesla's (NASDAQ:TSLA) stock has seen better days. Shares of the electric vehicle (EV) maker are now changing hands 40% lower than they were in November 2021.
Increased competition – especially from China – and rising costs have put a shadow on the company's growth story.
But things could change on November 5.
It is that day when voters in the US go to the polls and choose their next president. Bookies suggest the result is too close to call. Maybe that's why Elon Musk recently announced his support for Donald Trump. It also provides financial incentives to encourage people to register to vote.
Protection
In September, Joe Biden raised tariffs on EV imports from China to 100%. The tax – originally charged at a modest 27.5% – was first introduced by Trump during his presidency.
If Kamala Harris wins, it's likely that she will keep the standard unchanged.
However, 'The Donald' has said he will impose a 200% tariff on all EV imports – not just those from China – if he is re-elected. The threat of price increases is believed to be behind Tesla's recent decision to mothball its gigafactory in Mexico.
On balance, Tesla should benefit from any increase in import taxes. Even if it cannot bring its cheap cars across the southern border with America, it has the ability to increase production in its factories inside the country.
It may take advantage of the expected drop in demand for goods from Europe and elsewhere. And the consequences can be huge. By 2023, America imported $19bn of EVs.
Does history repeat itself?
And, Musk will be hoping another Trump presidency will have a similar impact on his company's stock price last time.
In January 2017, when Trump became the 45th president of the United States, Tesla's stock was changing hands at $16. When he left office four years later, the shares were worth $282. That's a 16-fold increase.
However, it wasn't until 23 months later, in November 2021, that they reached a record high of $407. Musk has President Biden to thank for that.
Reasons for caution
But there is no guarantee that Trump will win or raise rates.
Politicians make many promises in the campaign. In theory, the idea of protecting American jobs by imposing high tariffs on foreign goods sounds attractive. But buyers may resent paying for cars they want to buy overseas.
And they might not buy Teslas instead. All major American manufacturers produce EVs at competitive prices.
One commentator suggested that “Elon's politics” could split Democrats.
Also, Tesla's cars are starting to look a little tired. Its cheapest car — the Model 3 — hasn't had a refresh since its launch in 2017.
Final thoughts
Until now, I resisted the temptation to buy Tesla stock.
I always thought it was expensive. And even with the recent fall in the company's share price, this hasn't changed. The stock currently trades at a forward price-to-earnings (P/E) ratio of 79, the highest of the Magnificent Seven.
That's too rich for me.
However, like many, I will be following the final weeks of the US election campaign with interest. But I don't suspect nearly as much as the shareholders of Elon Musk and Tesla.
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