Tesla shares tumbled nearly 6% on Thursday after a social media spat between CEO Elon Musk and former President Donald Trump highlighted growing tensions between the two influential figures. The market reaction underscores how closely Tesla’s fortunes have become tied to Musk’s personal political positioning ahead of the 2024 election.
The conflict erupted when Trump posted on his Truth Social platform that he would “never” support electric vehicles, directly contradicting one of the core businesses in Musk’s empire. The former president wrote, “I’m not a fan of electric cars. I’m a fan of gasoline-powered cars.” Trump’s comments represent a stark departure from what many had perceived as a warming relationship between the two men.
Market analysts immediately took notice. “The political alignment between Musk and Trump has been a stabilizing factor for Tesla investors concerned about regulatory risks,” said Daniel Ives, managing director at Wedbush Securities. “This public disagreement introduces a new layer of uncertainty that markets hate.”
The timing couldn’t be more problematic for Tesla, which has already weathered significant challenges this year. The company’s stock had fallen approximately 28% year-to-date before this latest drop, as cooling EV demand and increasing global competition have squeezed margins. The Federal Reserve’s high interest rate environment has particularly hurt automobile financing, with EV purchases often requiring larger loans than traditional vehicles.
According to data from Cox Automotive, EV sales growth in the U.S. has slowed to just 3.3% in the first quarter of 2024, down from double-digit growth in previous years. Tesla’s market share has simultaneously declined from 62% to 51% as competitors like Ford, GM, and Chinese manufacturers have expanded their electric offerings.
The conflict also highlights the risks of Musk’s increasingly political profile. Since acquiring Twitter (now X) in 2022, Musk has taken increasingly conservative positions and recently expressed potential support for Trump’s return to office. The Tesla CEO has criticized the Biden administration’s EV policies despite the company benefiting substantially from federal tax credits offered to EV buyers.
“Musk finds himself in a precarious position,” said Ross Gerber, CEO of Gerber Kawasaki Wealth Management, a significant Tesla investor. “He’s alienating Tesla’s traditionally progressive customer base while aligning with politicians who fundamentally oppose the transition to sustainable energy.”
Financial data reveals that Tesla derives significant value from government incentives. The Inflation Reduction Act’s EV tax credits have been credited with sustaining demand for Tesla vehicles amid price cuts. The company also continues to benefit from selling regulatory credits to other automakers, generating $1.8 billion in 2023 alone from this revenue stream.
The tension with Trump places Musk in a difficult strategic position. Tesla has invested billions in manufacturing capacity, including factories in Texas, Nevada, and California – states with very different political environments. The company’s ambitious growth targets require political goodwill across the spectrum.
“It’s an impossible tightrope to walk,” said Jessica Caldwell, executive director of insights at Edmunds. “Tesla needs broad political support for EVs regardless of which party controls Washington. Musk’s personal politics increasingly complicate that equation.”
Institutional investors have grown increasingly concerned about governance issues at Tesla. The recent rejection of Musk’s proposed $56 billion compensation package by a Delaware court highlighted what Judge Kathaleen McCormick called the board’s failure to negotiate at “arm’s length” with Musk. The CEO’s divided attention between Tesla, SpaceX, X, and other ventures has further worried long-term shareholders.
The Federal Reserve’s latest economic projections suggest interest rates will remain elevated through much of 2024, creating additional headwinds for big-ticket purchases like EVs. Tesla’s average vehicle price point has fallen to approximately $42,000, but financing costs continue to dampen consumer enthusiasm.
For Tesla employees, the political drama adds another layer of uncertainty. The company recently announced layoffs affecting approximately 10% of its global workforce amid what Musk called “duplication of roles and job functions.” Internal communications obtained by the Financial Times suggest growing concern among Tesla’s workforce about the company’s direction and leadership focus.
Market observers now watch carefully to see if the conflict between Musk and Trump escalates or resolves. With both men known for their unpredictable communication styles and reluctance to back down from public disputes, the situation introduces significant volatility for Tesla shareholders already navigating challenging market conditions.
As one Wall Street analyst put it, “Tesla’s stock price now reflects not just the company’s economic fundamentals, but the unpredictable nature of its CEO’s political evolution.” For investors, employees, and the broader EV industry, that’s an uncomfortable new reality.
