Elon Musk’s plan to save Tesla has blown up faster than a SpaceX rocket, even though everything seemed to be going in his favor. Now the billionaire is in a direct war with Donald Trump, and it’s costing him dearly.
Things were supposed to go like this: Musk, who became a MAGA acolyte with a chainsaw in hand, was supposed to give up his political actions in Washington and return to business. His empire was struggling without him, and Tesla, in particular, was in a downward spiral. Investors needed Musk’s old magic to revive sales and transform the electric vehicle company into an artificial intelligence giant.
But it seems you can take the CEO out of Washington D.C., but you can't take DC out of the CEO, notes CNN, commenting on Elon Musk's political fervor.
Experts anticipate that Tesla (TSLA) will report another quarter with a one-quarter drop in global sales on Wednesday, an unexpected development after months of revenue decline due to increased competition in the electric vehicle market and damage to the brand's reputation by Musk's role as "best friend" of President Trump.
As the CEO of a company where sales of the main product are rapidly declining, one would expect to avoid any public disputes that would further undermine investors' confidence in the leadership. Or you can choose Musk's path, as mentioned by the American TV station.
Musk is stuck with Tesla in political mud
This week, less than a month after leaving his role as a special government advisor to focus on revitalizing Tesla, Musk rolled back into political mud, sparking a new feud with Trump over the tax and spending bill that led to an explosive increase in the deficit, proposed by the president.
Musk called Trump's landmark legislation "insane" and threatened Republicans in Congress who vote for it. He went further, warning: "If the crazy spending bill passes, the America Party will be formed the next day."
Trump responded harshly, suggesting that his administration could investigate Musk's companies' government contracts.
"This issue with his best friend has now turned into a soap opera that remains a major problem for Tesla's stock. Tesla investors want Musk to focus on leading Tesla and stop this political approach... being on the wrong side of Trump won't be good, and Musk knows that," said Dan Ives, an analyst at Wedbush and a longtime Tesla supporter, in a note to clients on Tuesday.
Ives remains optimistic about Tesla, but in recent months, he has talked about the damage Musk's political changes have done to the company's image, which doesn't help solve the sales problem.
Before Wednesday's report, analysts forecasted a 13% drop in Tesla sales from April to June compared to the previous year. Data provider FactSet indicated a decrease in Tesla sales for the quarter to 387,000, compared to 444,000 a year earlier.
This decline could be even more severe than in the first quarter when Tesla reported the most significant year-over-year sales drop.
Sales are not the only problem for Tesla
The company recorded a 71% decline in net income in the first quarter. Its showrooms were bombarded with protests. The Cybertruck is a failure. Republicans and Democrats say they are less likely to buy a Tesla now than before Musk's tenure at the White House, according to a new Electric Vehicle Intelligence Report published on Tuesday.
And, in fact, there is something worse than all of this.
Looking closely at Tesla's earnings in the first quarter, it is evident that Tesla is losing money from what should be its main business: car sales. In short, Tesla managed a profit of only $409 million in the last quarter due to selling $595 million in regulatory credits to other automakers. This is the practice by which companies that exceed environmental standards - emissions or renewable energy use regulations - earn credits that can be sold to other companies that have not met these standards.
But if Trump succeeds in passing his flagship budget bill, those credits will evaporate. Trump's "big and beautiful law" was narrowly passed in the US Senate, and now it has one more hurdle to clear - the House of Representatives. Republican House Speaker Mike Johnson assured that his members will "immediately review the text" and it will reach "President Trump's desk on time" by July 4. A vote is scheduled for Wednesday.
This is just one of the many reasons why investors like Ives hope that Musk and Trump can bury the hatchet or at least that Musk can keep his mouth shut for five minutes.
Tesla relies on government credits to remain profitable, but it also needs favorable regulations to have a chance to compete with rivals like Waymo, Alphabet's driverless taxi company, which is already circling Tesla.
How Musk speaks, how the stocks fall
Tesla's shares, the backbone of Musk's personal wealth, have dropped by 37% from the post-election peak when Musk became a central figure at Mar-a-Lago. On Wall Street at the time, it was believed that Tesla's problems were manageable, and any negative consequences from the company's liberal base would be offset by the benefit of Musk's presence in the White House, influencing regulations.
It might have worked, for a short time. But the feud between the two made investors fear that Trump would directly retaliate against Tesla.
After the renewed conflict between Musk and Trump on Monday, Tesla's shares fell by 2%. On Tuesday, they dropped another 5%, missing the broader stock market rise.
The message might reach Musk. After Trump commented that DOGE, the committee set up by Musk to reduce federal bureaucracy, could be a "monster" that "will turn back and eat Elon," Musk seemed to hold back. Or something like that. "So tempting to escalate the situation. So tempting. But I'll refrain for now," he wrote on X.
Except that Trump has shown he is also tempted to destroy him if he doesn't calm down. On Tuesday, the White House leader said he will consider the possibility of expelling the South Africa-born billionaire.
T.D.