Elon Musk’s recent initiative to establish a new political party is raising concerns about the potential risks to his business interests. This comes as Tesla’s stock took a hit on Monday following Musk’s announcement over the weekend. It’s not the first time actions by tech executives in the political arena have negatively affected electric vehicle manufacturers.
Additionally, former President Trump has revised his offers of contracts and subsidies for Musk’s ventures, which casts doubt on the substantial government support that SpaceX currently enjoys.
“This move could be one of the most significant strategic blunders I’ve ever witnessed,” remarked Ross Gerber, a long-time Tesla investor and CEO of Gerber Kawasaki Wealth and Investment Management.
“Musk and Trump are now in direct opposition, which only worsens Tesla’s standing,” he continued.
On Monday morning, Tesla shares dropped significantly by 7% right after the market opened, a reaction to Musk’s decision to pursue a new political party.
Since parting ways with the president last month, Musk has frequently mentioned the idea of forming a third party. He reiterated this notion last week, reigniting tensions over Trump’s expansive tax reforms.
After polling followers on social media platform X, Musk declared on Saturday that he was moving ahead with the American Party.
“We live in a one-party system that bankrupts our country through waste,” he stated. “Today, the American Party is being created to restore your freedom.”
This political pivot hasn’t pleased many investors, especially since they had felt relieved when Musk distanced himself from the Trump administration.
For example, James Fishback, CEO of investment firm Azoria, mentioned that his company is postponing their public listing of the Tesla Exchange Traded Fund (ETF) due to Musk’s recent declaration.
“We were actually encouraged when Elon stepped back from Doge in May and focused on Tesla,” Fishback noted on X.
“His recent announcement, however, shakes that confidence,” he added.
Initially, Musk’s connection to Trump’s administration after investing over $250 million in the campaign seemed promising for Tesla. Yet, his involvement with the Ministry of Government Efficiency (Doge) quickly became a contentious issue, with electric vehicle manufacturers becoming political symbols amidst debates about cutting government expenditures and staff.
Tesla’s stocks have suffered, facing protests against its dealerships and products. In the first quarter, EV makers experienced a 71% revenue drop, followed by a 13% decline in global sales in the second quarter.
Musk’s departure from the White House in May was meant to refocus on Tesla, yet his ongoing disputes with Trump about fiscal policies fueled his desire to create a separate political entity.
“You don’t want to see Musk getting increasingly involved in politics,” warned Dan Ives, an analyst at Wedbush Securities. “He should concentrate solely on Tesla, not make enemies within the Trump camp.”
“This is risky,” he added. “It complicates things for Tesla and introduces uncertainty. Plus, it’s unlikely that a third party will gain traction. This could be detrimental for Tesla shareholders.”
Trump and certain Republican figures have criticized Musk’s enthusiasm for third-party politics. Trump referred to his former ally’s ambitions as “a train wreck” and “completely off the rails.”
“Starting a third party is a flawed strategy; they’ve never succeeded in the U.S.,” Trump commented in a recent post.
Trump’s anger could potentially jeopardize Musk’s companies, which heavily rely on government contracts. Recent analyses indicated that Musk’s business interests have accessed at least $38 billion in government aid.
Trump has suggested scrutinizing the contracts and aid aimed at Musk’s enterprises, particularly as tensions grow over Musk’s criticisms of him.
“Elon has received unprecedented subsidies, but he might need to shut his business down and go back to South Africa,” Trump wrote, advising further examination of the situation.
SpaceX, which has accrued over $22 billion in government funding, stands at risk of losing critical support.
While some experts believe the U.S. government relies too much on SpaceX for various missions, making it less feasible for Trump to cut them off, the company still faces challenges.
Mark Whittington, a space policy specialist, pointed out that SpaceX’s expertise gives it an advantage, making it hard for the government to find alternatives.
As such, some analysts, including Ives, suggest that Tesla’s board should intervene to create guidelines for Musk’s future decisions. This might include using the ongoing legal disputes over CEO pay to set better expectations for Musk’s commitment to the company.
It’s also possible for the board to enhance Musk’s voting control, aligning him more closely with Tesla’s goals. However, Musk’s reaction to this suggestion was dismissive, indicating disinterest in outside opinions.
Gerber, however, expressed doubt about the board’s potential to steer Musk’s actions.
“Musk will do as he pleases, without regard,” Gerber stated. “And the board hasn’t shown they can change that.”
