Tesla stock experienced a significant decline of up to 7.6% in premarket trading on Monday, following an unexpected announcement from CEO Elon Musk about the formation of a new American political party. This move has attracted sharp criticism from former US President Donald Trump, leading to heightened tensions and uncertainty among investors.
Initially, Tesla's shares (TSLA) opened down 7.6% at 9:30 a.m. ET, although they later recovered some of their earlier losses. Trump's reaction came swiftly, as he expressed his disappointment with Musk's decision on his Truth Social platform late Sunday. “I’m saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks,” Trump stated, referencing Musk's announcement about forming a political party designed to compete with the existing Republican and Democratic parties.
While boarding Air Force One in New Jersey, Trump labeled Musk’s announcement as “ridiculous,” suggesting that it would lead to confusion among voters. The tension between Musk and Trump has been escalating since early June when Musk criticized Trump's recently signed tax and domestic policy bill, calling the policies detrimental to the federal budget.
According to Neil Wilson, a strategist at UK trading platform Saxo Markets, the decline in Tesla stock is attributed to two main concerns among investors. Firstly, there are fears that the ongoing friction between Musk and Trump could result in further reductions to US government electric vehicle (EV) subsidies. Secondly, there is apprehension regarding Musk's apparent distractions that may detract from his focus on Tesla.
“Investors had cheered Musk stepping back from frontline politics but are now worried he’s going to (be) sucked back in and take his eye off Tesla,” Wilson noted in a recent analysis.
This feud began intensifying when Musk publicly criticized Trump’s “Big, Beautiful Bill,” which aims to address various economic issues. Musk argued that the bill would add trillions of dollars to the federal budget deficit, asserting, “When it comes to bankrupting our country with waste & graft, we live in a one-party system, not a democracy.” He declared the formation of the America Party, emphasizing a return to freedom for American citizens.
Trump responded, asserting that third political parties have historically failed in the United States, stating, “the one thing (they) are good for is the creation of Complete and Total DISRUPTION & CHAOS.”
On Monday, Tesla was on track for its largest single-day loss since June 5, coinciding with the beginning of the Musk-Trump exchanges on social media. The company has faced mounting challenges in recent months, including increased competition from rival EV manufacturers and complications arising from Musk's political engagements. Recently, Tesla reported a record 13.5% drop in second-quarter sales compared to the same period in 2024, marking its first-ever annual decline in sales as a public company.
Interestingly, Tesla is at risk of losing its title as the world’s largest EV maker in terms of annual sales to the Chinese automaker BYD, despite BYD not yet entering the US market.
Musk’s involvement in the US government, notably leading the Department of Government Efficiency and implementing mass layoffs of federal workers, has sparked widespread protests outside Tesla showrooms globally. After announcing his intention to step back from his government role in May, investors had hoped for more of his focus on Tesla and his other ventures, including SpaceX and X.
However, with Musk's renewed political ambitions and ongoing conflict with Trump, he has been thrust back into the political spotlight. Following the election, shares of Tesla nearly doubled, reaching a record high in December, largely due to optimistic investor expectations regarding a potential alliance between Musk and Trump. Nevertheless, the turbulence surrounding Musk's political activities has led to a significant decline in Tesla's stock value, which has plummeted over a third since then.
