Tesla shares caught in the middle of Musk-Trump breakup

When President Donald Trump won the election in November, investors viewed Tesla Inc. as one of the biggest winners. That bet now seems to be on shaky ground after investors watched the once formidable alliance dissolve in real time.

Simmering tensions over Trump’s signature tax-and-spending bill erupted into a public war of words on Thursday, with Trump mulling an end to government contracts and subsidies for Tesla and Space Exploration Technologies Corp. Musk said he would decommission a SpaceX aircraft used by the US, only to walk back his threat later in the day.

“I was somewhat horrified by what I was reading because I immediately saw it as an extremely bad idea to start a conflict of this level with the President of the United States,” said Ross Gerber, president and chief executive officer of Gerber Kawasaki Wealth and Investment Management.

Tesla shares sank 14 per cent Thursday, erasing more than $150 billion in market capitalisation. It also hit Destiny Tech100 Inc., a close-ended fund with a large stake in SpaceX, which tumbled 13 per cent. The electric-vehicle maker finished the week down 15 per cent, marking its worst week since October 2023. The stock is the biggest laggard year-to-date among the Magnificent Seven group of technology companies, which is 3.3 per cent in 2025, versus a 27 per cent slide for the EV maker, according to data compiled by Bloomberg.

“It’s a junior high school fight where these best friends are now becoming frenemies,” said Dan Ives, an analyst at Wedbush and one of the biggest Tesla bulls. “It’s a Twilight Zone situation for all investors, because the last thing investors want to see is Trump go from a huge supporter of Musk and Tesla to a foe.”

Musk and Trump have stopped trading insults, for now. And there are no plans for a call between the two, Bloomberg News reported. But, the damage done over the course of a few hours might be difficult to repair. Tesla ended Friday’s session with a 3.7 per cent gain, recouping just a fraction of their losses from Thursday. 

Gone

Musk stepped away from his role in the Trump administration last week after calls from Tesla shareholders to take a step back. The split seemed pleasant at first, with Musk indicating that he intended to stay within the White House’s orbit. But since Musk’s exit, he has been a vocal critic of the bill at the centre of Trump’s domestic policy.

“I think Trump is probably pretty dismayed that Elon called him out in front of the whole world, and this doesn’t get any better from here,” said Gerber. “Hopefully it will simmer down, but it’s a horrifyingly bad idea to attack the President of the United States.”

The rift between the two sides started to widen on Tuesday, when Musk condemned Trump’s signature tax bill as a “disgusting abomination.” “I think there’s other issues as well where they disagree,” Ives said. “It’s been eye-opening for Musk, with his foray into politics. When you get into the Beltway, it’s a lot different than running a company.”

Add to that the policies championed by Trump and Republican lawmakers, which could put billions at risk for Tesla. Congressional Republicans are siding with Trump in the messy breakup with Musk, which is an optimistic sign for its eventual passage. Should the bill pass, it would eliminate a tax credit worth as much as $7,500 for buyers of some Tesla models and other electric vehicles by the end of this year, seven years ahead of schedule. This would result in a $1.2 billion hit to Tesla’s full-year profit, according to JPMorgan analysts.

Stay or Go?

Tesla shares surged 29 per cent during the week that Trump won the election, signalling investor optimism about how a second Trump presidency would benefit the automaker. However, since Nov. 6, the stock has only provided a 2.3 per cent return through Friday’s close. That compares to a 20 per cent return from November 6 to the close on May 30, a sign investors are headed for the door.

Public friction between Trump and Musk “heightens political and reputational risk” around Tesla, according to Paul Stanley, chief investment officer at Granite Bay Wealth Management. Sustained controversy could hurt investor confidence and create added volatility, Stanley said. “Given the inherent powers of the office of the presidency, I don’t see how this could be anything but negative for Tesla and Musk,” he said.

Meanwhile, BCA Research’s Irene Tunkel views Tesla shares as “overpriced,” noting a “steep” price tag for a company that faces slowing growth and competition in a cutthroat, low-margin industry.

“The market was pricing in many dreams, from humanoid robots to the mass production of fully autonomous cars,” Tunkel said. “A pullback felt inevitable.”

But, there were some winners from Thursday’s fallout. Short sellers cashed out as shorts were up an estimated $4 billion in mark-to-market paper profits, according to Matthew Unterman of S3 Partners LLC. Tesla is the third most shorted stock within the S&P 500 behind Nvidia Corp. and Microsoft Corp., Unterman said.

“Tesla’s drama with the administration adds political risk to what’s already a crowded trade,” said Haris Khurshid, chief investment officer at Karobaar Capital LP. “Investors were pricing in bluesky AI and autonomy bets, but this flare-up sharpens the focus back on execution, margins, and policy exposure.”

Khurshid added: “We’ve trimmed exposure for now — not because we doubt the tech, but because sentiment can unwind faster than fundamentals can catch up.”

‘Be Patient’

The squabbling comes ahead of a crucial moment for Tesla. The company is targeting a June 12 launch for its long-awaited robotaxi service in Austin, Texas — an important milestone in Musk’s plan to reshape the company around driverless vehicles and artificial intelligence.

A successful launch would depend on software improvements that reduce disengagements — where humans need to retake control of the car — and bring Tesla closer to competitor Waymo LLC, according to a note from Bloomberg Intelligence’s Mandeep Singh and Robert Biggar. 

The launch of the robotaxi service next week is the “start of the autonomous vision and the next chapter of golden growth,” said Wedbush’s Ives, who considers Tesla “way oversold.” Still, investors will have to “be patient,” he said.

“I still believe that they stay friends and supporters of each other, but this is definitely a little white-knuckle period for Tesla investors,” Ives said.

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Published on June 7, 2025