In a remarkable turn of events, Tesla CEO Elon Musk's strategic gamble to support Donald Trump's presidential bid has paid off handsomely, propelling the electric vehicle (EV) manufacturer to unprecedented heights. As the rest of the auto industry grapples with a broad industry malaise, Tesla's stock has soared, creating a staggering valuation gap between the company and its competitors.

Musk's Masterstroke: How Tesla Outpaced the Competition

The Valuation Chasm

Tesla's market capitalization has skyrocketed, reclaiming its position as a member of the elite club of companies worth more than $1 trillion. This remarkable feat comes just a week after the company's stock gained a full third in value following the U.S. presidential election. The last time Tesla reached this lofty valuation was in April 2022, when Musk had just unveiled his ambitious $44 billion plan to acquire Twitter.Compared to its peers, Tesla's dominance is truly staggering. The company is now worth more than the next 15 largest carmakers combined, from industry giants like Toyota and General Motors to smaller players like Jeep's parent company Stellantis and Hyundai. Even when factoring in the likes of Kia and Renault, Tesla still maintains a significant lead, only drawing even once the $8.8 billion from Japan's Nissan is added to the mix.

The Trump Effect: Regulatory Tailwinds and Tax Cuts

Musk's support for Trump's presidency appears to have paid off handsomely, as the market anticipates a more favorable regulatory environment and potential tax cuts for U.S. manufacturers like Tesla. Investors are optimistic that Trump's administration will deliver on his promised corporate tax rate reduction from 21% to 15%, providing a significant boost to Tesla's bottom line.Moreover, Musk may even see his wish for federal legislation enabling autonomous vehicles come to fruition, potentially accelerating Tesla's plans to roll out its highly anticipated full-self driving technology. This could give the company a significant competitive edge in the race towards autonomous mobility.While some economists have raised concerns about the impact of Trump's love for tariffs on Tesla's competitors, such as GM's Chevrolet Equinox and Ford's Mustang Mach-E, both of which are imported from Mexico, this is unlikely to slow down Tesla's momentum. The company manufactures all of its models sold in the U.S. either at its California plant in Fremont or its new facility in Austin, Texas, with the exception of its battery cells, which are still predominantly imported from Asia.

Defanging Regulatory Oversight: The "Lawfare Discount"

According to David Sacks, a member of the PayPal mafia and a Trump supporter, Musk's influence in a potential second Trump administration would effectively "defang" regulatory enforcement by agencies like the National Highway Traffic Safety Administration (NHTSA). This, in turn, would put an end to any investigations into Musk's business dealings, which Sacks refers to as the "lawfare discount" – the stock market's pricing in of the perceived viciousness of the Democratic party's regulatory approach.

Sentiment vs. Fundamentals: A Widening Gap

The valuation gap between Tesla and its peers is truly staggering. While Tesla's stock trades at a lofty 100 times its estimated 2025 earnings per share, according to the consensus of 34 analysts, its competitors like General Motors are valued at a mere 5.3 times their earnings.This level of premium is typically reserved for the most cutting-edge tech companies, with even industry giants like Nvidia, Amazon, Microsoft, Apple, Meta, and Alphabet trading at significantly lower multiples. This suggests that Tesla's earnings estimates may be lagging behind the market's sentiment, which has been buoyed by Musk's bullish predictions of a 20% to 30% jump in Tesla's car sales next year, driven by the introduction of new models, including a lower-priced version of the Cybertruck.However, as Gary Black, the manager of the Future Fund, has warned, the spread between Tesla's sentiment-driven share price and the average Wall Street price target based on the fundamental business metrics has reached its highest level since October 2021 – a month before the stock hit its all-time peak. This raises concerns that, "absent earnings increases, analysts can't just raise Tesla price targets without economic justification."