Tesla (NASDAQ:TSLA) stock jumped as much as 20.6% last month, marking its best monthly performance since late 2024 and reversing a period of underperformance for the electric vehicle (EV) giant.
At the centre of this rally is the return of Elon Musk to day-to-day leadership at Tesla. This follows his controversial stint as head of the Department of Government Efficiency (DOGE) under the Trump administration.
Investors had grown weary of Musk’s political distractions, which many felt cast a shadow over Tesla’s prospects. With Musk now recommitted to the company, confidence has returned and the so-called ‘Musk overhang‘ on the stock has lifted, unleashing pent-up demand from both retail and institutional investors.
But what else?
Another key driver behind the surge is likely the renewed optimism around Tesla’s autonomous vehicle ambitions. The company’s preparing to launch its long-awaited robotaxi service in Austin, Texas. Rollout’s expected as soon as 12 June.
This development has reignited excitement about Tesla’s first-mover advantage in self-driving technology, with analysts arguing that successful execution could fundamentally reshape the company’s growth trajectory.
Wedbush’s Dan Ives, a prominent Tesla bull, reinstated a $500 price target, citing the robotaxi launch as a potential game changer. As always, execution’s key. If it goes well, Tesla stock could go stratospheric. If it doesn’t go to plan, the stock could slump to trade closer in line (on earnings multiples) with other EV firms.
The ‘TACO trade’
The broader market context has also played a role. The so-called TACO trade (Trump Always Chickens Out) has seen investors pile into US stocks — especially the tech-heavy Magnificent Seven — in the belief that President Trump won’t follow through on his tariff threats. Tesla’s benefitted from record foreign capital inflows and a general rotation back into high-growth technology shares.
However, investors should be a little cautious about the TACO reference. A journalist recently questioned Trump on his thoughts about the subject and he was clearly dismissive of the chickening out notion. He’s said his approach is all about forcing countries to negotiate. He may, of course, take steps to ensure his threats are taken seriously.
The bottom line
Despite ongoing challenges — including weak sales in China and Europe — investors appear to be looking past short-term issues and focusing on Tesla’s disruptive potential. The May rally highlights the enduring nature of the faith in Musk’s vision and the company’s ability to lead the next wave of automotive innovation.
Personally, I fear some additional volatility in US stocks in the near term. That’s primarily because Trump’s trade policy, be it through the tariffs or the uncertainty created, will likely impact market earnings. However, I thoroughly accept that Tesla could prove immune to a pullback if it proves its credentials in the robotaxi world.
Nonetheless, I’m staying out of it. I want Tesla to succeed, and I’ve actually been rather impressed by the autopilot on my own Model Y. However, execution risk is very sizeable. That’s why I’m not buying.
