Tesla's Political Tightrope: Musk's Trump Feud and the Risks to EV Dominance

The public feud between Elon Musk and Donald Trump has reached a fever pitch, with implications that could upend Tesla's financial trajectory. As the two once-allied figures clash over policy, subsidies, and personal pride, investors must weigh the risks to Tesla's stock valuation, its reliance on federal contracts, and the broader market's perception of its leadership-driven model.

The Fractured Alliance: Musk, Trump, and the Road to Conflict

The relationship between Musk and Trump has oscillated between collaboration and hostility since 2016. While Musk once endorsed Trump post-2024 assassination threats and donated $277 million to his campaign, their partnership unraveled over ideological and practical divides. Musk's vocal opposition to Trump's “One Big Beautiful Bill”—which seeks to slash EV subsidies and federal spending—has drawn retaliatory threats, including the cancellation of SpaceX's lucrative government contracts.

The fallout has already triggered market volatility. Tesla's stock dropped 8% in May 2025 amid escalating tensions, underscoring how political theater now influences investor sentiment.

Key Risks to Tesla's Subsidies and Contracts

1. EV Tax Credits Under Siege
   Trump's bill targets EV incentives, which Tesla still benefits from indirectly. While competitors like Ford and Rivian rely more directly on the $7,500 tax credit, Tesla's $2.8 billion in annual emissions credit sales could collapse if California's stricter emissions rules are rolled back.

1. SpaceX's Federal Lifeline
   SpaceX's $3.8 billion in annual NASA contracts, including the Artemis lunar program, are non-negotiable for U.S. space ambitions. Even Trump's threats to cut ties are tempered by SpaceX's role as NASA's sole astronaut transport provider. Still, prolonged political theater could delay critical funding approvals.

2. Regulatory Rollbacks and Market Sentiment
   Trump's push to end EV subsidies could accelerate competition from Chinese automakers like BYD, which already dominate global EV sales. Tesla's valuation, already discounted to rivals on a price-to-sales basis, faces further pressure if subsidies disappear.

Valuation: Overextended on Musk's Shoulders?

Tesla's stock trades at ~7x forward sales, down from 20x in 2021, reflecting skepticism about its ability to sustain growth amid leadership dependency. Musk's political missteps—such as his threats to “decommission” SpaceX's Dragon spacecraft—highlight how Tesla's fate is tied to his volatile public persona.

Analysts warn that Musk's feud with Trump could exacerbate existing vulnerabilities:
- Cybertruck Delays: Tesla's $25,000 truck faces production hurdles, diverting resources from its core vehicle lineup.
- Chinese Competition: BYD's 2024 sales surged 89%, while Tesla's China market share dipped to 12%.
- Subsidy Dependency: Ending federal incentives could reduce U.S. EV adoption rates, hitting Tesla's Supercharger network and software revenue.

Investment Strategy: Hedge the Political Minefield

Investors should consider three prongs to mitigate risk:
1. Short Tesla or Use Put Options: With political uncertainty clouding near-term catalysts, shorting TSLA or buying put options could capitalize on a potential 15–20% drop if subsidies are cut.
2. Rotate to Less Politicized EV Plays: Firms like NIO (NIO) or Lucid (LCID)—less exposed to U.S. subsidy cycles—or battery suppliers like CATL (through ADRs) offer safer bets.
3. Monitor Federal Contract Milestones: Track SpaceX's NASA contract renewals and any legislative progress on EV subsidies. A resolution favoring Tesla could trigger a rebound.

Conclusion: Tesla's Survival Isn't in Doubt—Its Growth Is

Tesla's structural advantages—its brand, software ecosystem, and global scale—will likely keep it afloat even if subsidies vanish. However, Musk's feud with Trump has exposed the fragility of its political armor. Investors must balance Tesla's long-term potential with near-term risks. Until the dust settles, caution reigns.

Final Takeaway: Proceed with caution. Tesla's stock is now a play on Musk's ability to navigate political storms while executing on product launches. For now, the safer bet is to hedge—or look elsewhere in the EV space.