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Tesla shares experienced a significant drop on Monday, falling as much as 7.6% in premarket trading and remaining down by about 7% during regular trading.
This decline followed CEO Elon Musk’s announcement of forming a new American political party, which drew an immediate and “irate” response from US President Donald Trump.
Trump, in a Truth Social post late Sunday, criticised Musk for going “completely off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks, specifically mentioning Musk’s Saturday announcement. The president also publicly called the move “ridiculous” and predicted it would cause “confusion.”
Investor Concerns Over Political Distraction and EV Subsidies
Analysts suggest Tesla investors are worried on two fronts. First, increased friction between Musk and Trump could lead to further cuts to US government electric vehicle (EV) subsidies. Second, investors are concerned that Musk appears “distracted” by his political ambitions.
Neil Wilson, a strategist at Saxo Markets, noted that investors had previously welcomed Musk stepping back from frontline politics but now fear he’ll be “sucked back in and take his eye off Tesla.”
The recent public spat between Musk and Trump began in early June after Musk criticised Trump’s “Big, Beautiful Bill,” a tax and domestic policy bill that Musk argues will add trillions to the federal deficit.
Musk announced the formation of “the America Party” on X, stating it would “give you back your freedom.” Trump, however, dismissed third parties as historically unsuccessful and generators of “Complete and Total DISRUPTION & CHAOS.”
Tesla’s Recent Challenges Compounded by Political Fallout
Monday’s stock performance put Tesla on track for its biggest single-day loss since early June, when the initial public exchange between Musk and Trump occurred.
This political controversy compounds a challenging period for Tesla. The company recently reported a record 13.5% drop in second-quarter sales compared to the same period in 2024 and its first-ever annual decline in sales as a public company in 2024.
These figures indicate a significant shift for an automaker accustomed to robust growth. Tesla is also projected to lose its title as the world’s largest EV maker to China’s BYD.
Furthermore, Musk’s recent stint leading the Department of Government Efficiency, which involved mass layoffs of federal workers, sparked protests outside Tesla showrooms globally.
While Musk announced in May he would step down from his government role, a move that initially raised investor hopes for increased focus on his companies, his ongoing feud with Trump and new political party push have pulled him back into the political spotlight.
Tesla shares had nearly doubled after the election, reaching a record high in mid-December on expectations of a beneficial Trump-Musk alliance, but have since lost more than a third of their value due to these controversies.
