What happened

Shares of Tesla (NASDAQ:TSLA) shot higher on Tuesday, rising 4.5% as of 11 a.m. EST.

The growth stock's gain is likely due to both an optimistic day in the overall market and news that the Trump administration is officially beginning the transition process for President-elect Joe Biden. A Democratic Biden administration is largely viewed as a net positive for green energy companies like Tesla.

A chart showing a stock price rising

Image source: Getty Images.

So what

Under the Obama administration, qualifying buyers of Tesla vehicles received significant tax credits. These tax credits represented an effort from the administration to help transition the U.S. more rapidly toward green energy. But the Trump administration was largely against these credits, and they were phased out for Tesla under Trump's leadership.

Some Tesla investors may be hoping that a Biden administration reenergizes green energy incentives, helping accelerate demand for Tesla's electric cars, solar panels, and energy storage products.

Now what

Investors shouldn't count on an incentive to bolster demand for Tesla's products, as there are no guarantees Tesla customers will receive any new incentives. Moreover, to justify the company's $500 billion market capitalization, the electric-car maker will need more than a near-term boost from tax credits -- the company needs to demonstrate strong organic growth in demand.

Fortunately, demand for Tesla vehicles has fared just fine ever since the federal tax credits were phased out. Vehicle deliveries in the company's most recent quarter, for instance, soared 44% year over year. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.