Tesla's Governance, Contracts, and Perception: Why the Musk-Trump Feud Spells a Sell Opportunity

The public feud between Elon Musk and Donald Trump has escalated into a high-stakes conflict with profound implications for Tesla's valuation and operational stability. As the two figures trade insults and threats, Tesla's reliance on federal subsidies, SpaceX's government contracts, and Musk's erratic governance style have come under scrutiny. This article examines how the rift could derail Tesla's financial health and why investors should consider exiting positions now.

1. Governance Concerns: A Leadership Crisis in Disguise

Tesla's governance structure has always been contentious, but the Musk-Trump feud highlights a deeper vulnerability. Musk's abrupt resignation as head of the Department of Government Efficiency (DOGE) in May 2025, followed by his scathing criticism of Trump's “One Big Beautiful Bill,” signals a breakdown in strategic alignment. The bill, which aims to slash spending but includes cuts to EV subsidies, directly conflicts with Tesla's core interests.

Musk's dual role as a corporate leader and political advocate has blurred lines between governance and personal vendettas. His public accusations that Trump is linked to the Epstein files—despite no evidence—adds reputational risk. Investors should question whether Musk's focus remains on Tesla's long-term goals or his personal feud.

2. Government Contracts: The Fiscal Lifeline at Risk

Tesla's financial health is inextricably tied to federal incentives. In 2024, regulatory credit sales alone generated $2.8 billion, while EV tax credits and renewable energy subsidies contributed billions more. The One Big Beautiful Bill threatens to eliminate these benefits, potentially costing Tesla $1.2 billion annually (per JPMorgan estimates).

Meanwhile, SpaceX's government contracts—worth $3.8 billion in 2024—are now under threat. Trump's explicit warning to “terminate subsidies and contracts” could disrupt NASA's reliance on SpaceX for International Space Station missions. A sudden loss of these contracts would strain Tesla's cash flow and undermine its ability to fund innovation.

Key data points: Tesla's stock fell 14% on June 5, 2025, erasing $152 billion in market value—a direct response to Musk's feud with Trump.

3. Market Perception: The Trust Deficit

Musk's feud has already triggered a market panic, with Tesla's stock plummeting 14% in a single day. Investors fear not just subsidy cuts but also broader regulatory backlash. Trump's administration has targeted Tesla's “regulatory credit dominance,” pushing bills to phase out EV incentives by 2026. This could force Tesla to compete on price alone, a stark contrast to its premium positioning.

Musk's social media theatrics—threatening to decommission SpaceX rockets or endorsing Trump's impeachment—further destabilize investor confidence. The company's valuation, already under pressure from competition (e.g., Ford's F-150 Lightning), now faces a credibility crisis.

4. Operational Challenges: Beyond Subsidies

Even without subsidy cuts, Tesla faces mounting operational hurdles:
- Supply Chain Strains: Musk's push for “vertical integration” has led to costly missteps, like the $6 billion Shanghai Gigafactory 2 project.
- Competitor Surge: Traditional automakers are ramping up EV production, eroding Tesla's market share.
- Regulatory Headwinds: The U.S. Department of Transportation's probe into Tesla's Autopilot safety could lead to recalls or fines.

Investment Thesis: Sell While You Can

The Musk-Trump feud amplifies existing risks, making Tesla a speculative play rather than a core holding. Key reasons to exit:
1. Subsidy Dependence: 20% of Tesla's revenue stems from federal incentives; their removal could trigger a valuation collapse.
2. Contract Uncertainty: SpaceX's NASA ties are a double-edged sword—vital for cash flow but vulnerable to political whims.
3. Leadership Risk: Musk's focus on feuds distracts from Tesla's execution, from factory delays to software bugs.

Conclusion: A Sell Signal for Tesla

Tesla's stock now trades at a P/E ratio of 45x, far above its 5-year average of 28x, despite slowing growth and rising risks. The Musk-Trump feud is not just a distraction—it's a catalyst for policy changes that could cripple Tesla's financial model. Investors should consider taking profits or exiting positions entirely until governance and subsidy risks are resolved.

Final Note: Monitor federal bill progress and SpaceX contract updates. A reconciliation between Musk and Trump could stabilize shares temporarily, but structural risks remain unresolved.