Musk's political gamble unravels, wiping billions from Tesla’s stock value

06 June 2025

A very public and messy falling out between Tesla CEO Elon Musk and President Donald Trump sent the electric car maker's stock tumbling, erasing billions in value and leaving investors to question the high price of political alliances.

Tesla's stock, known for its wild swings even on quiet days, took a huge hit, dropping over 50 points in a single day. But this sharp decline had nothing to do with a new factory, a vehicle recall, or quarterly production numbers. Instead, it was the direct result of a war of words waged on social media between two of the world's most prominent figures. The feud effectively burst a bubble of speculation that had surrounded the company since Musk threw his considerable weight and financial backing behind Trump's presidential campaign.

The alliance was always an odd one. Musk, the face of the electric car revolution, became a top donor to a political party whose platform favors the fossil fuel industry. He backed a president who openly spread misinformation about electric vehicles. In return for his support, which reportedly included hundreds of millions in campaign contributions, Musk was granted an advisory position in the so-called "Department of Government Efficiency" - a body that, despite its grand title, was not an official government department.

Following Trump's election, Wall Street bet heavily on this relationship, and Tesla's stock price rocketed. Not on company performance, but on the market's expectation that Musk's proximity to power would result in a favorable treatment for his businesses. Investors simply priced in a so-called "corruption premium," assuming Tesla would be rewarded. For a time, it seemed the bet might pay off, but the reality of economy-damaging tariffs and a continued legislative focus on oil and gas began to tarnish the shine.

The relationship finally fractured over a new Republican budget bill. Musk, having left his advisory role, publicly slammed the bill, pointing out it would add trillions to the national deficit. The criticism triggered a furious back-and-forth. Trump retorted that Musk was merely upset about the bill cutting an "EV mandate" - a mandate that never actually existed. The bill does, however, eliminate the $7,500 federal tax credit for new electric cars, an incentive that has been a major driver of EV sales and from which Tesla has greatly benefited. Musk fired back, claiming he swung the election for the Republicans and accused the president of "ingratitude."

The feud quickly escalated. Trump threatened to terminate lucrative government contracts with Musk's other companies, including SpaceX, which provides essential services to NASA and the International Space Station. Musk responded by threatening to ground the Dragon capsule. The public spat reached a fever pitch when Musk accused Trump of being on Jeffrey Epstein's list and called for his impeachment. For the stock market, this was the final straw. The prospect of any political favoritism vanished, and with it, over $100 billion in Tesla's market capitalization since the feud began.

This dramatic fallout exposes the dangerous position of already troubled Tesla. The very tax credits and incentives that Musk seemed willing to sacrifice are critical to the company's bottom line. The bill he once supported is set to eliminate not only the EV tax credit but also vital credits for solar energy and US-based battery production. Without these, Tesla would have reported a loss in the first quarter of 2025. This feud could also breathe new life into stalled federal investigations by the SEC, DOJ, and NHTSA into Musk and his companies, with the president now having a clear motive for retaliation.

These political headwinds are hitting at a time when the Tesla brand is already suffering from Musk's increasingly erratic and controversial public persona. His political statements and actions have pushed away a large portion of Tesla's traditionally left-leaning customer base, sparking protests and damaging the company's image in North America and Europe. Sales figures reflect this damage, with deliveries on track to be down nearly 50% in Europe this year. While the US market has been somewhat insulated by aggressive discounts and a lack of strong competition, the removal of the federal tax credit could change that landscape dramatically, leaving Tesla to face a market it helped to sour.

It was quite a day for Tesla's stock yesterday, the market closed at $284.70 or just over $47 lower than the day before. Today is another day and the market seems to have shrugged off the initial worries with Tesla staging a strong comeback and trading at $299.32 at the time of writing (pre-market) - it will be a rollercoaster ride for a while for Tesla's investors.

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