Tesla's stock dropped sharply on Monday after CEO Elon Musk revealed plans to form a new U.S. political party, intensifying tensions with former ally President Donald Trump. By midday in New York, Tesla shares had fallen 7%. The decline followed Musk's Friday announcement, in which he revealed his intention to start a political party due to disagreement with Trump over new tax legislation. Trump responded by calling the idea "ridiculous."
Musk's political move has added to growing concern among analysts and investors about his focus on Tesla, especially after the automaker reported lower-than-expected second-quarter sales, blamed in part on distractions from Musk's political engagements.
"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," said Dan Ives, an analyst at Wedbush Securities. "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."
The feud escalated last week when Trump threatened to withdraw federal subsidies benefiting Musk's companies, following a public spat that erupted 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," said Shawn Campbell of Camelthorn Investments in an interview with Reuters.
If the losses hold, Tesla stands to lose over $80 billion in market value, while short-sellers could see $1.4 billion in gains on paper from the stock’s decline.
The announcement also renewed scrutiny of Tesla’s board. In May, Chair Robyn Denholm dismissed reports that board members wanted to replace Musk, but critics argue the board has done little to rein him in. “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 business law professor at the University of Colorado Law School.
Lipton added, “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.”
Musk's other ventures, X Corp (formerly Twitter), SpaceX, and others, remain private and are not subject to the same shareholder pressure as Tesla. However, Tesla's performance is closely tied to Musk, its largest shareholder and the world's wealthiest individual.
