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Tesla after Trump

Tesla

Everyone saw it coming. When Donald Trump and Elon Musk made their pact ahead of the 2024 election, it was widely assumed that the partnership would be shortlived. But this was even shorter than we expected. And the break-up was a spectacle.

That spectacle undid much of the boost Tesla stock received from Musk announcing that he would step back from his government work and focus on business. Since Musk’s late April announcement, Tesla had risen nearly 45 per cent. On Thursday, during the mud-throwing contest, the shares went down 14 per cent, and only gained back a little on Friday. Interestingly, that fall leaves Tesla’s shares essentially flat since 2022. Here’s the chart:

Tesla is not a stock that — how to put this? — responds much to fundamentals. While it was already down for 2025, even that fall may have been understating the significant troubles at the automaker. Sales have been plummeting in the US and abroad, as Musk’s personal brand has turned off buyers and as the company has lost ground to other EV makers, particularly cheap Chinese competitors. Analysts had already been steadily downgrading expected sales over the past three years, and are now predicting a steeper decline at the end of this year and in 2026:

Its gross profit margins have eroded as volumes have fallen, and they are expected to go lower still. And the other parts of its business have had major obstacles: its higher-margin battery business has been disrupted by tariffs, while its robotaxi fleet is falling behind competitors like Waymo.

But that brings us to the big question. What does the big drop last Thursday mean? What is the market thinking, as it were? 

We have three (not mutually exclusive) theories. The first is that the market is reacting to the provisions of Trump’s big beautiful bill. A bearish JPMorgan note making the rounds suggests that the bill could cut Tesla’s operating earnings in half. They estimate a $1.2bn drop from the end of the consumer EV tax credit, and a $2.0bn hit from the end of carbon tax credits. Those proposals have been on the books now for a week or two, and have not moved the stock all that much. With Trump and Musk no longer on good terms, it seems unlikely that Musk can convince Republicans to amend the bill.

The next possibility is that the premium built into Tesla’s stock is about more than just the car business. Up until last week, it seemed that Musk’s companies outside of Tesla were getting a boost from his work in the federal government: X debt sold well, and SpaceX and Starlink got various perks. Tesla investors might have been expecting something similar for Tesla. Not now.

A final factor is partisanship. TD Cowen created a breakdown of Tesla’s US sales by each counties’ political leanings. Since the Trump-Musk partnership started, sales in red counties have picked up and are a larger share of the total, while sales have fallen in blue ones:

Itay Michaeli and his colleagues at TD Cowen note that if all red counties were to reach the same level of EV penetration as red counties in Texas, which saw a big bump in the first quarter, there would be a 39 per cent jump in EV sales this year (not just for Tesla). But with Musk now on Trump’s bad side, Republican enthusiasm for EVs — Tesla’s EVs in particular — may wane.

There is a range of views about what could happen from here. While analyst estimates are mostly ticking down, more bullish assessments are out there. Emmanuel Rosner at Wolfe Research argues that the hit from the budget bill could be less severe than predicted by JPMorgan. He breaks it down as follows: 

And who knows where the relationship between the two billionaires will wind up. Their love turned to hate quicker than we imagined. But love and hate are always two sides of the same coin. The bromance could be rekindled.