Tesla and SpaceX: Navigating Political Crosscurrents in a Geopolitical Storm

The public feud between Elon Musk and Donald Trump in June 2025 has unveiled a critical vulnerability in Musk's tech empire: its dependence on federal funding and regulatory goodwill. As Trump threatens “serious consequences” for Musk's perceived political disloyalty—including cuts to SpaceX's government contracts and Tesla's EV tax credits—the implications for investors are stark. This article examines how geo-political risk and regulatory exposure could reshape the valuation and growth prospects of Musk's companies, and offers strategies to hedge against policy-driven volatility.

The Geopolitical Tightrope: Federal Funding as a Sword and Shield

SpaceX and Tesla operate in sectors where government contracts and subsidies are existential. For SpaceX, NASA's $13 billion in crewed missions and Pentagon contracts form the backbone of its revenue. The Crew Dragon spacecraft, NASA's sole means of transporting astronauts to the International Space Station (ISS), relies entirely on federal funding. Trump's threat to “take a look” at these subsidies is no idle warning: abruptly ending them could destabilize U.S. space exploration and force reliance on Russian alternatives—a politically untenable outcome.

Similarly, Tesla's profitability hinges on federal tax incentives and California's emissions credits, which together account for over $4 billion in annual revenue. The One Big Beautiful Bill, a Trump priority, seeks to eliminate these benefits, risking a 10-15% earnings hit for Tesla.

Note: Tesla's stock fell 14% in June . . . and has yet to fully recover, reflecting investor anxiety over political crosscurrents.

Regulatory Exposure: A Double-Edged Sword

Musk's political pivot—from Trump donor to vocal critic—has exposed Tesla and SpaceX to retaliatory risks:
1. SpaceX's Regulatory Lifeline: NASA's ISS deorbit contract ($843 million) and lunar lander programs ($4 billion) are non-negotiable for the U.S. space agenda. Cancelling them would harm national prestige and defense capabilities, making this a low-probability risk.
2. Tesla's EV Subsidy Cliff: The One Big Beautiful Bill's rollback of EV tax credits targets Tesla's market position. While Tesla claims to thrive without subsidies, its global sales decline (down 12% in Q2 2025) suggests vulnerability to policy shifts.
3. DOGE's Legacy: Musk's brief tenure as head of the Department of Government Efficiency, which slashed federal agencies, has left Trump's administration with a tool to retaliate—e.g., audits or investigations into SpaceX's data access to the Social Security Administration.

Investment Implications: Hedging Against Political Volatility

1. Tesla: A Short-Term Sell, Long-Term Hold?
2. Risks: The One Big Beautiful Bill's passage could strip $1.2 billion in tax credits and $2 billion in emissions credits, compressing margins.
3. Mitigants: Tesla's global scale (30% sales outside the U.S.) and cost leadership in battery tech provide resilience.

4. Recommendation: Consider a covered call strategy to capitalize on near-term dips while retaining upside exposure.

5. SpaceX: A Geopolitical Monopoly

6. Risks: While NASA cannot abandon SpaceX without ceding space dominance, geopolitical tensions (e.g., China's space ambitions) may amplify funding.
7. Mitigants: SpaceX's Starlink and satellite internet contracts with the military offer a diversified revenue stream.

8. Recommendation: Invest in aerospace ETFs (e.g., PRXT) to gain indirect exposure without Musk-specific political risk.

9. Sector Diversification

10. Avoid overexposure to politically aligned tech firms. Diversify into sectors with less regulatory dependency, such as cloud infrastructure (AWS, Microsoft) or semiconductors (Nvidia, Intel).

Conclusion: Politics as a Price of Innovation

Musk's companies are a microcosm of the risks in tech investing today: innovation's rewards come with geopolitical and regulatory volatility. While Trump's threats may be more bluster than action, the exposure underscores the need for investors to weigh policy risks alongside fundamentals. For now, Tesla's valuation (P/E of 40 vs. 25 for Ford) reflects its premium as a growth story—until subsidies vanish. Investors should remain nimble, using options and diversification to shield portfolios from the storm.

Final Recommendation:
- Reduce Tesla exposure to 5-10% of a tech portfolio.
- Allocate to aerospace ETFs for SpaceX's upside without Musk's political baggage.
- Hedge with put options on Tesla stock to protect against regulatory setbacks.

In a world where politics and tech are increasingly entwined, prudence—not just innovation—will define long-term winners.