Musk’s political ambition has spooked investors as the auto company reports a decrease in sales in the second quarter.
Tesla shares have tumbled after CEO Elon Musk announced plans to launch a new US political party amid his ongoing feud with his longtime ally, United States President Donald Trump.
Shares of the electric automaker are down 7 percent as of 12pm in New York (16:00 GMT) on Monday. Musk announced his plans on Friday to launch a new political party after disagreements with the president over the tax legislation signed into law the same day. Trump has called the idea “ridiculous”.
Musk’s announcement has fuelled further concerns amongst analysts about his dedication to the automaker after it reported a sales decline in the second quarter driven by Musk’s political involvement.
Trump-Musk conflict weighs on investors
“Very simply, Musk diving deeper into politics and now trying to take on the Beltway establishment is exactly the opposite direction that Tesla investors/shareholders want him to take during this crucial period for the Tesla story,” Dan Ives, analyst at Wedbush Securities, said in a note. “While the core Musk supporters will back Musk at every turn no matter what, there is a broader sense of exhaustion from many Tesla investors that Musk keeps heading down the political track.”
“After leaving the Trump Administration and DOGE [the US Department of Government Efficiency], there was initial relief from Tesla shareholders and big supporters of the name that Tesla just got back its biggest asset, Musk. That relief lasted a very short time and now has taken a turn for the worse with this latest announcement.”
Last week, Trump had threatened to cut off the billions of dollars in subsidies that Musk’s companies receive from the federal government after their feud erupted into an all-out social media brawl in early June.
“I, and every other Tesla investor, would prefer to be out of the business of politics. The sooner this distraction can be removed and Tesla gets back to actual business, the better,” Camelthorn Investments adviser Shawn Campbell, who owns Tesla shares, told the Reuters news agency.
Tesla is set to lose more than $80bn in market valuation if current losses hold, while traders are set to make about $1.4bn in paper profits from their short positions in Tesla shares on Monday.
Musk’s latest move also raises questions around the Tesla board’s course of action. Its chair, Robyn Denholm, in May denied a Wall Street Journal report that said board members were looking to replace the CEO.
Tesla’s board, which has been criticised for failing to provide oversight of its combative, headline-making CEO, faces a dilemma managing him as he oversees five other companies and his personal political ambitions.
“This is exactly the kind of thing a board of directors would curtail – removing the CEO if he refused to curtail these kinds of activities,” said Ann Lipton, a professor at the University of Colorado Law School and an expert in business law.
The company’s shares and its future are seen as inextricably tied to Musk, the world’s richest man, whose wealth is constituted significantly of Tesla stock. He is Tesla’s single largest shareholder, according to data from the London Stock Exchange Group (LSEG).
“The Tesla board has been fairly supine; they have not, at least not in any demonstrable way, taken any action to force Musk to limit his outside ventures, and it’s difficult to imagine they would begin now,” Lipton added.
Other companies tied to Musk – including X Corp, formerly Twitter, and SpaceX – are not publicly traded.
