Chip Somodevilla, Getty Images
Tesla Motors CEO Elon Musk in the White Houses Roosevelt Room

Why Is Musk Cozying Up to Trump?

Jan. 26, 2017
A 40% surge for Tesla Motors the last couple months certainly helps. So does a shared drive to make right here in America.

This is a good time to be Elon Musk.

Shares of the billionaire’s Tesla Motors Inc. have surged 40% since Dec. 1, putting the stock within reach of a 52-week high. The acquisition of SolarCity is complete. Musk’s sprawling Gigafactory is now producing battery cells. And the clean-energy evangelist has the ear of a surprising fellow in Washington: President Donald Trump.

It’s a big turn of fortune from 2016, when skepticism was mounting that Musk could juggle his ambitious goals. Tesla’s shares crossed above analysts’ 12-month price target as of this week and are trading at about $254, the highest since April. One reason for the surge — progress toward production of the mass-market Model 3 electric car by year-end — has also burnished Musk’s appeal as an adviser to the new president.

“Tesla is a poster child for Made in the USA, and the one thing that is a clear focus for Trump is creating manufacturing jobs,” said Ben Kallo, an analyst at Robert W. Baird. “Investors want to own the stock ahead of the Model 3 launch.”

Palo Alto, California-based Tesla’s cars are all produced in the U.S., so Trump’s threats to tax imports could be a boon to the maker of electric vehicles and energy storage devices. Tesla, which has 25,000 workers in the U.S., builds vehicles in Fremont, California; its Gigafactory lies in a Republican congressional district in Nevada; and it has partnered with Panasonic Corp. to produce solar cells and panels beginning this summer in Buffalo, New York. The rockets launched by his closely held Space Exploration Technologies Corp. are all made at SpaceX headquarters in Hawthorne, California.

Musk was one of a dozen CEOs who met with Trump at the White House on Monday to talk manufacturing, taxes and trade. He serves on the president’s economic advisory board and regularly meets with either Trump or his top aides.

“Elon Musk has an important line of communication to Donald Trump,” Morgan Stanley analyst Adam Jonas wrote in a note last week as he raised his price target to $305 from $242. “This strategic relationship between Tesla leadership and the new administration is an important development.”

Tesla was little changed on Wednesday at $254.47, about $9 above analysts’ average price target. It’s approaching the 52-week closing high of $265.42, set April 6, and is about $30 from the closing peak set in September 2014. Analysts remain split on its prospects, with eight calling it a buy, 10 a hold, and six a sell.

Musk, 45, and Trump, 70, may seem an odd pair. Before the election, the South Africa-born entrepreneur said on CNBC that Trump “doesn’t seem to have the sort of character that reflects well” on the U.S. and urged people to revolt and fight the “propaganda” of the fossil fuel industry. Trump, of course, has chosen former Exxon Mobil Corp. CEO Rex Tillerson to be his secretary of state and Scott Pruitt, an ally of the oil and gas industry, to lead the Environmental Protection Agency.

Even so, there is clearly room for common ground. Musk shocked some of his loyal customers Tuesday when he declared on Twitter that Tillerson “has the potential to be an excellent Sec of State.”

When asked to expound, Musk said “Rex is an exceptionally competent executive, understands geopolitics and knows how to win for his team. His team is now the USA.” Both Musk and Tillerson have expressed support for a tax on carbon emissions.

Musk’s support for Tillerson brought fire from Michael Mann, a climate scientist whose claim to fame includes the paper outlining the so-called hockey-stick chart of temperature data. “You are a hero to so many climate activists Elon,” Mann wrote on Twitter. “Please don’t lend your imprimatur to an Exxon Mobil-driven foreign policy.”

Policy differences aside, the recent stock surge suggests investors consider it wise for Musk to have a seat at the table.

“Elon is being pragmatic,” said Joe Dennison, associate portfolio manager of Zevenbergen Capital Investments in Seattle. “The administration’s focus on domestic manufacturing plays into Tesla’s hands. It’s a positive that Elon and Tesla are being recognized for the role that they are playing.”

By Dana Hull

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Licensed content from Bloomberg, copyright 2016.

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