Tesla’s stock took a sharp hit on Monday after CEO Elon Musk announced he was launching a new political outfit, the America Party. The move has not only upset investors but also reignited tensions with former ally and current U.S. President Donald Trump.
📉 Stock Impact
Tesla shares dropped over 7% in early U.S. trading, erasing gains made during the second quarter. Despite a 22% rebound in Q2, Tesla is down 21% in 2025, significantly underperforming other tech stocks.
This comes just days after better-than-expected delivery numbers had stabilized investor sentiment. But Musk’s political ambitions seem to have shifted the spotlight again.
🗳 A Political Gamble Investors Didn’t Want
Elon Musk’s decision to form a third party follows his open opposition to Trump’s recently passed tax and spending bill. According to Wedbush analyst Dan Ives, “Musk diving deeper into politics is the opposite of what Tesla shareholders want right now.”
President Trump responded on Truth Social, saying Musk had “gone off the rails” and that the new party would only bring “disruption and chaos.” Trump also emphasized that his tax reforms remove a $7,500 electric vehicle tax credit, impacting Tesla’s customer base.
🚫 Fallout: Subsidies, SpaceX Contracts at Risk?
The situation has raised concerns about Musk’s companies — Tesla and SpaceX — facing policy setbacks. Trump has reportedly hinted at removing subsidies and halting federal contracts if Musk continues down the political path.
📉 Analyst Downgrades and Boardroom Pressure
On Monday, investment firm William Blair downgraded Tesla, citing threats to profitability due to Trump’s new tax policy. The bill scraps penalties for fuel inefficiency (CAFE standards), a move that could wipe out up to 75% of Tesla’s regulatory credit revenue, which accounted for $2.8 billion in 2024.
Meanwhile, Azoria CEO and Tesla investor James Fishback sent a letter to Tesla’s board, urging them to call a meeting. He said Musk’s political plans create a “conflict with his CEO responsibilities.”
⚖️ Board Involvement Likely
Analysts say Tesla’s board may need to step in if Musk’s political ambitions grow. “This is not the news Wall Street wanted,” said Ives. “With AI and autonomous driving on the horizon, Musk doesn’t need to poke the bear. Trump could make things even harder in the run-up to 2026 midterms.”
🧭 What Lies Ahead?
While many still believe in Tesla’s long-term potential, especially in AI and automation, investors are urging Musk to stay focused on the company. Whether the America Party gains traction or causes more strain on Tesla’s future remains to be seen.
