Tesla's Volatility Amid Musk-Trump Feud: A Contrarian's Opportunity?

The Tesla stock saga in June 2025 has been a rollercoaster of political theater and market overreaction. After Elon Musk's public feud with President Trump erupted over fiscal policy and personal insults, Tesla's shares plummeted 14% on June 5—the largest single-day loss in its history—before rebounding 3.7% the next day. For contrarian investors, this volatility may mask a rare opportunity to buy into Tesla's long-term potential at a discounted price. But is the market overreacting to short-term noise, or are there fundamental risks that justify the sell-off?

Valuation: Overbought or Oversold?

Tesla's stock price has long been a lightning rod for debate. At a $1 trillion market cap, Tesla trades at 140x forward earnings, far above peers like General Motors (6.5x) or even high-growth automakers like BYD (45x). Analysts at CFRA have maintained a “Hold” rating, citing overvaluation and execution risks. Yet, contrarians argue that Tesla's long-term vision—robotaxis, autonomous software, and its vertically integrated ecosystem—could justify a premium if realized.

Morningstar's $250 price target, nearly 40% below current levels, underscores skepticism. However, the firm's valuation assumes Tesla's robotaxi launch is delayed until 2028. If Musk can accelerate timelines or prove the technology's scalability, the stock could rebound sharply.

Political Risks: A Temporary Storm or Structural Threat?

The Musk-Trump feud has injected unprecedented uncertainty into Tesla's trajectory. Trump's threat to revoke government contracts and subsidies has rattled investors, given Tesla's reliance on federal partnerships (e.g., SpaceX's NASA ties). Yet, the backlash may be overstated.

• SpaceX's Strategic Importance: The Dragon spacecraft is critical to U.S. space missions. Cutting ties would risk NASA's operations and geopolitical standing, making a full-scale severance unlikely.
• DOGE Legacy: Musk's controversial tenure as head of the Department of Government Efficiency (DOGE) ended in April 2025, reducing direct political exposure. Remaining federal contracts are likely non-negotiable for national interests.

Moreover, Musk's political clashes are not new—his battles with regulators and world leaders have persisted for years. The market's panic may be overestimating the permanence of this feud, especially as both men reportedly seek a resolution behind the scenes.

Federal Contracts: A Double-Edged Sword

Tesla and Musk's companies derive significant revenue from government partnerships. For example:
- SpaceX: Supplies NASA with $3 billion in annual contracts for crewed missions.
- Neuralink: Secures grants for brain-computer interface research.
- Tesla Energy: Benefits from federal subsidies for renewable infrastructure.

A sudden withdrawal of these contracts would hurt, but analysts at Goldman Sachs note that 70% of Tesla's revenue comes from auto sales, which are less politically exposed. The bigger threat is regulatory scrutiny, such as the rollback of EV tax credits. However, these policies face bipartisan opposition, suggesting gridlock.

Underlying Business: Can Tesla Rebound?

Despite the political drama, Tesla's fundamentals are deteriorating. Key issues include:
- Global Sales Slump: European sales fell 50% in April 2025, while China's market share erodes to 18% amid competition from BYD and NIO.
- Quality Concerns: Eight Cybertruck recalls in 15 months highlight execution risks.
- Robotaxi Hurdles: The Austin launch—vital for autonomy revenue—is delayed and scaled back to 20 vehicles, raising doubts about Musk's timelines.

Yet, these challenges are already priced into the stock. A $3–5 billion annual loss scenario (if sales drop 60%) seems extreme, as Tesla's $18% contribution margin leaves room for cost cuts. Meanwhile, its $20 billion cash reserve provides a cushion to weather downturns.

The Contrarian Case: Buy the Dip?

For investors willing to look past the noise, Tesla's current valuation offers an intriguing entry point. The stock's 22% year-to-date decline has erased much of its premium, and the recent rebound hints at a “buy the rumor, sell the news” cycle. Key catalysts to watch:
1. Robotaxi Launch: A successful Austin rollout in late 2025 could validate Musk's vision.
2. Autonomy Software: Full Self-Driving (FSD) beta's monetization potential remains untapped.
3. Global Pricing Strategy: Tesla's $25,000 Model Q, expected in 2026, could reclaim affordability.

Dan Ives of Wedbush calls Tesla “way oversold,” arguing the stock is a “buy at $200–$250.” Meanwhile, short sellers have piled in, creating a setup for a short-covering rally if the feud cools.

Conclusion: Proceed with Caution

Tesla's stock is a high-risk, high-reward proposition. While political tensions and operational challenges are real, the market's reaction may have exaggerated these risks. For contrarians with a 5–10-year horizon, accumulating shares at current levels could yield outsized returns if Musk's long-term bets pay off.

Investment Recommendation:
- Hold: For risk-averse investors awaiting clearer catalysts.
- Buy: For contrarians willing to bet on Tesla's innovation and Musk's resilience. Target price: $250 (Morningstar's fair value) with upside to $350 if autonomous revenue materializes.

The Musk-Trump feud is a sideshow. The real question is whether Tesla can turn its vision into cash—and whether investors can stomach the volatility until that happens.