Tesla Stock Slumps as Musk Announces Third Political Party

Tesla Shares Face Challenges Amid Elon Musk's Political Moves

Tesla investors experienced a difficult start to the week as the company's stock dropped following a series of developments involving CEO Elon Musk. His plan to form a new U.S. political party sparked backlash from former President Donald Trump and some analysts, causing shares to fall sharply in premarket trading.

Market Performance and Investor Sentiment

Despite a rebound in the second quarter with a 22% gain after a 35% drop in the first, Tesla shares are still down 21% in 2025, underperforming the broader tech market. While the company saw some relief with better-than-expected second-quarter deliveries, the stock finished the holiday-shortened week down 2.5%.

Musk announced the formation of the America Party after polling his X users on whether he should proceed. This move came amid his ongoing criticism of the Trump-backed tax-and-spending legislation that has now become law. The bill eliminates a $7,500 tax credit for electric vehicle buyers, which Musk has criticized for adding trillions in debt and favoring industries of the past over those of the future.

Political Tensions and Public Reactions

Trump responded to Musk's announcement on his Truth Social account, expressing disappointment that Musk was "going completely 'off the rails' with plans for a third party." He praised the Republican party for passing the tax and spending bill, which he had campaigned against for two years. Trump claimed he made his stance clear to Musk, who initially seemed unconcerned.

The situation also involved the White House, which named billionaire astronaut Jared Isaacman to head the U.S. space agency but later withdrew his nomination in June. Meanwhile, Musk’s involvement in politics has raised concerns among investors and board members.

Wall Street's Concerns and Board Involvement

As Tesla stock struggled in early 2025, Wall Street urged Musk to refocus on his companies and investors. However, Musk's exit from DOGE in late May did little to ease investor concerns. A public spat between Trump and Musk eventually led to a truce, but tensions resurfaced when Trump threatened to remove subsidies for Musk's companies and cancel government contracts for Tesla and SpaceX.

Treasury Secretary Scott Bessent commented on Musk's political ambitions, stating that his strength lies in running companies. He suggested that the boards of Musk's companies would prefer him to focus on business activities rather than political ones.

Investor Pressure and Potential Board Action

James Fishback, CEO of investment firm Azoria, posted a letter on X to Robyn Denholm, chair of the Tesla board. He expressed concern over Musk's political moves, citing a conflict with his responsibilities as CEO. Fishback requested an immediate meeting to discuss Musk's political ambitions and their compatibility with his role at Tesla.

Analyst Dan Ives from Wedbush noted that Tesla’s board might get involved if Musk continues down this path. Despite these challenges, Ives maintains his outperform rating and $500 price target for Tesla shares, emphasizing the company's strong AI future. However, he warned that the political landscape could add more hurdles for Musk, Tesla, and SpaceX in the coming years, especially with the midterms in 2026 approaching.