Tesla's Volatility in the Trump-Musk Crossfire: Risks, Opportunities, and a Contrarian Play

The feud between Elon Musk and Donald Trump has become a spectacle of epic proportions, with Tesla's stock price bearing the brunt of their public clashes. Over the past year, Tesla's market cap has dropped by over 40%, and its stock has become a barometer of political theater. Yet beneath the noise lies a complex interplay of financial risks, regulatory vulnerabilities, and strategic opportunities. For investors, the question is no longer whether to bet on Tesla—but when, and at what price.

The Feud Timeline: From Alliance to Anathema

The partnership between Musk and Trump began as a politically advantageous marriage. Musk's endorsement of Trump after the 2024 assassination attempt, his role in the Department of Government Efficiency (DOGE), and his public advocacy for Trump's re-election created a symbiosis of power and profit. By January 2025, Musk was a visible figure in the administration, even advising on federal contracts. But by June 2025, the alliance had collapsed. Musk's criticism of Trump's “One Big Beautiful Bill” (which seeks to cut EV subsidies) and Trump's retaliatory threats to cancel SpaceX's government contracts turned the feud into a financial battleground.

Tesla's Financial Risks: The Subsidy Sword of Damocles

Tesla's reliance on federal subsidies is staggering. The $7,500 EV tax credit and $40,000 tax break for the Tesla Semi alone contribute billions to its revenue. But under the One Big Beautiful Bill, these subsidies face elimination, potentially costing Tesla $1.2 billion annually. Worse, the bill's rollback of state emissions standards could strip Tesla of its $2 billion annual revenue from selling regulatory credits to legacy automakers.

Compounding these risks is Musk's divided focus. His retreat from DOGE and SpaceX's NASA contracts—critical to U.S. space strategy—has raised red flags. While SpaceX's $5.9 billion National Security Space Launch (NSSL) contracts through 2032 provide a buffer, Musk's political brinkmanship (e.g., threatening to halt SpaceX's NASA programs) could backfire.

Opportunities: The Contrarian's Edge

The feud isn't all downside. SpaceX's role as the U.S. space program's backbone means its contracts are too vital to cut abruptly. Even if Trump follows through, alternatives like ULA's Vulcan rocket lack the scale to replace SpaceX quickly. Meanwhile, Tesla's long-term prospects hinge on political resolution:

1. Subsidy Survival: If Trump's bill fails to eliminate EV tax credits, Tesla's sales could rebound. The IRS's 30% solar and Powerwall tax credit also remains a tailwind for energy storage.
2. Global Market Resilience: Despite declines in Europe and China, Tesla's Cybertruck and Semi could carve niches in high-margin segments. Musk's $250 million Trump campaign donation might still buy influence.
3. SpaceX's Strategic Shield: Starlink's FAA deal, though controversial, underscores its criticality to U.S. infrastructure. Even if Musk and Trump clash, SpaceX's monopoly on crewed ISS missions makes it untouchable for now.

The Investment Thesis: Short-Term Pain, Long-Term Play

For investors, the calculus is clear: short Tesla if the feud persists, but buy the dip if subsidies survive and tensions cool.

• Short Tesla (TSLA): If the One Big Beautiful Bill passes and Trump cancels subsidies, Tesla's valuation could plummet further. Its 14% drop in June 2025 after Musk's “Dragon spacecraft” threat hints at volatility. Weakness in its China and European markets, plus regulatory delays on FSD, amplify risks.
• Buy the Dip: A cooling feud—or a political compromise—could stabilize subsidies. If Musk pivots back to business (as he did after retracting his Dragon threat), Tesla's $1.7 trillion market cap could rebound. The $7,500 tax credit's survival alone justifies a price-to-sales multiple above 1.

Final Call: A Contrarian's Moment

Tesla's stock is a litmus test for Musk's ability to navigate politics without sacrificing business focus. The feud's endgame will determine whether Tesla remains a subsidy-dependent disruptor or a self-sustaining tech titan. For now, the prudent move is to wait for clarity—then bet big.

In the crossfire between Musk's ambitions and Trump's whims, the stock's volatility is a feature, not a bug. For the brave, the rewards could be astronomical—if the stars (and satellites) align.