Why Tesla Stock Jumped in December While EV Charging Stocks Tanked

Tesla (NASDAQ: TSLA) CEO Elon Musk bet on Donald Trump winning the November election, and investors jumped on the Tesla bandwagon after discovering he bet right. The election results helped drive Tesla shares sharply higher to end the year. But with those U.S. election results comes a mixed picture ahead for the electric vehicle (EV) sector.

According to data provided by S&P Global Market Intelligence, the EV leader's stock ended up rising 17% in December. But shares of EV charging companies didn't fare as well. ChargePoint Holdings (NYSE: CHPT) and EVgo (NASDAQ: EVGO) shares slid 12.3% and 37.8%, respectively.

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Investors looking to dive into the EV space should understand what led to that disparity and what might be coming as the market heads into 2025.

Tesla's unique case

That push at the end of the year helped Tesla shares end 2024 with a market-beating gain of about 62%. The stock even hit a record high before pulling back near the end of December. Much of Tesla's 2024 returns came after the U.S. election in early November. CEO Elon Musk backed Donald Trump and now holds an advisory position to the president-elect.

Investors think that could lead to an expedited regulatory process for approving the use of fully autonomous vehicles nationwide. Tesla has ambitions to create a fleet of Cybercabs that would currently be regulated at the state level. To develop and improve its self-driving software, the company has been investing heavily in artificial intelligence infrastructure to utilize the massive amount of data from the EVs it already has on the road.

A fleet of commercial self-driving vehicles isn't the only place Tesla could see lucrative returns from those investments. Many existing Tesla owners may be swayed to pay for its full self-driving software once it's perfected. That could bring additional high-margin revenue to the company.

A potentially friendlier regulatory environment for self-driving car development is just one benefit the new administration may bring to Tesla's business. Existing EV tax credits may be withdrawn, and ironically, that could help Tesla because it's already very profitable. Other EV makers may cede even more market share to Tesla if their push into the EV market drives increasing amounts of losses.

A loan and a share sale

That's why the stocks of other companies in the EV sector declined in December. Charging infrastructure companies, like ChargePoint and EVgo, are counting on continued expanding EV sales to provide enough scale to eventually create profitable revenue from the charging station infrastructure investments being made.

That wasn't the only reason EVgo shares plunged nearly 40%, though. EVgo closed on a previously announced $1.25 billion loan facility from the U.S. Department of Energy in December. Shares had already jumped from that announcement as those funds will help its efforts to continue expanding its charging network.

But less than a week after the loan closed, the company announced a secondary offering of its common stock priced well below the stock price at that time. The offering was made to benefit a major existing shareholder, allowing the sale of its holdings, which put downward pressure on EVgo stock.

Long-term risks

The charging network companies are now also offering Tesla EVs access to their stations. But Tesla's Supercharger network is still the dominant charging infrastructure in North America. That has led investors to sell shares in the companies building competing networks.

EVgo and ChargePoint are also relying on meaningful EV penetration growth in the coming years. The businesses could fail without continued growth in the popularity of electric vehicles, but Tesla already has a profitable business and new products on the way.

Its energy storage segment more than doubled deployments last year, and a new megafactory in China will boost that business further in 2025. A new, lower-priced vehicle could be announced this year as well. Humanoid robotics may be further away, but that could also provide future contributions.

Tesla will report fourth-quarter and full-year 2024 earnings on Jan. 29. At that time, the company could provide more insight into what's coming this year. While the risks remain high for Tesla stock, too, the future potential is enough to justify at least a small position.

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Howard Smith has positions in ChargePoint, EVgo, and Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.