The ongoing Tesla (NASDAQ: TSLA) stock rally could be further boosted after the Federal Reserve’s latest decision on interest rates.
Notably, the Fed is expected to make its third consecutive rate cut of the year on Wednesday, December 18. If the institution goes through with the decision, historical data suggests the move could act as a catalyst for further growth for the electric vehicle (EV) manufacturer.
Indeed, this comes at a time when Tesla is targeting the $500 mark, fueled by a post-election rally and impressive Q3 earnings results.
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At the close of the December 17 trading session, TSLA’s share price was valued at $477, up over 3% for the day. However, in pre-market trading on December 18, Tesla was down 3.45%, with a valuation of $464.
The pre-market losses coincide with reports indicating that Tesla’s Shanghai plant manager, Song Gang, has left the company.
Impact of interest rate cut on TSLA stock
Regarding the influence of the rate cut on the stock, Tesla’s last massive price rally occurred during a low-interest-rate environment, according to analysis by charting platform TrendSpider in an X post on December 18.
As rate cuts loomed in 2019–2020, TSLA’s share price skyrocketed amid the monetary easing environment. With the Federal Reserve now signaling the possibility of further rate cuts, the move could ignite a potential Tesla stock rally to new highs.
Based on this correlation, lower interest rates generally create an accommodative environment for growth stocks like Tesla.
Lower borrowing costs reduce financing expenses for companies and consumers, encouraging spending, investment, and innovation.
Tesla, in particular, thrives during these periods due to its capital-intensive business model and reliance on future growth expectations to justify its valuation. It could be an ideal way to start 2025, considering that Tesla was impacted by slowed demand in the EV space early this year.
Tesla’s growth potential, despite another Fed pivot concern
Moreover, concerns remain that the Fed might issue a hawkish outlook for 2025, suggesting the institution could be cautious about further rate cuts.
Despite this possibility, in addition to the potential impact of lower rates, Tesla still boasts notable fundamentals that are likely to spur further stock growth.
For instance, the Texas-based company is anticipated to thrive under a Donald Trump administration, given the president-elect’s close ties with CEO Elon Musk. In this context, the EV giant is expected to benefit from friendly regulations, particularly for autonomous driving technology.
At the same time, Tesla’s advancements in artificial intelligence (AI) will likely act as another trigger for growth.
Tesla’s key fundamentals
Several Wall Street analysts also support the bullish outlook. Mizuho Securities analysts raised Tesla’s price target to $515 from $230—a 123% upside—driven by favorable autonomous driving regulations, potential cost advantages under Trump policies, and a strong product pipeline, as Finbold reported.
On the other hand, Wedbush’s Dan Ives also raised his target to $515, projecting Tesla’s market cap to hit $2 trillion by 2025. Ives highlighted a $1 trillion AI and autonomous vehicle opportunity, with bullish policy support from the Trump administration.
However, it’s worth noting that even as Tesla enjoys a market cap of $1.5 trillion, there are underlying concerns. For instance, the stock might be pricing in Musk’s potential influence in the upcoming administration alongside speculation about the unrealized impact of full self-driving technology and AI.
Featured image via Shutterstock
