Trump and Musk Feud Sends Tesla Stock Plunging 14 Percent as Government Contracts Hang in Balance

Trump-Musk Feud: When Titans Clash, Markets Tremble

The once-vaunted alliance between President Donald Trump and tech magnate Elon Musk has collapsed into a spectacle of recrimination that sent Tesla's stock plummeting 14% on Thursday, erasing a staggering $150 billion in market value—the largest single-day loss in the company's history. But beneath the Twitter salvos and personal attacks lies a profound shift in America's political-business power dynamics with far-reaching implications for investors, the Republican Party, and U.S. technological leadership.

"Without me, Trump would have lost the election"

The feud erupted Tuesday when Musk, who recently resigned as head of Trump's Department of Government Efficiency, denounced the President's flagship domestic spending and tax bill as an "abomination" and a "repugnant monstrosity" on his X platform. By Thursday morning, Trump had responded during a meeting with German Chancellor Friedrich Merz, expressing "great disappointment" in Musk and suggesting the billionaire's anger stemmed from the bill's elimination of electric vehicle tax credits.

"It's sort of Trump derangement syndrome, I guess they call it," Trump told reporters, before issuing a thinly-veiled threat: "The easiest way to save money in our Budget, billions and billions of dollars, is to terminate Elon's Governmental Subsidies and Contracts."

Musk's rejoinder was swift and cutting: "Without me, Trump would have lost the election, Dems would control the House and the Republicans would be 51-49 in the Senate." He later added, referencing his reported $300 million support for Trump and GOP candidates in 2024: "Go ahead, make my day."

The spat reached its nadir when Musk cryptically wrote: "Trump is in the Epstein files. That is the real reason they have not been made public. Have a nice day, DJT!"

A Powder Keg of Political and Market Risk

For investors, the confrontation has transformed Tesla from a growth darling into a political-risk powder keg. The stock closed Thursday at $284.70, down $47.23, with volatility metrics exploding as traders recalibrated exposure to what one hedge fund manager called "binary policy outcomes."

"The market isn't just pricing the feud—it's pricing the power of presidential vengeance," explained a senior analyst at a top investment bank. "Musk's companies have roughly $22 billion in NASA and Department of Defense contract backlog that could theoretically be frozen at Trump's discretion."

The stakes extend beyond Tesla. SpaceX's $250 billion private valuation now looks increasingly tenuous, with Musk briefly threatening to decommission the company's Dragon spacecraft—critical for U.S. space missions—before walking back the threat hours later.

The Emperor's New Cars: Tesla's Fading Edge

While the political drama dominates headlines, Tesla's underlying competitive position was already eroding before the first tweet.

"Tesla still relies heavily on Model 3 and Model Y, both aging platforms with weak updates," noted a UBS report released last month, which maintains a "sell" rating with a $190 target—44% below Thursday's closing price.

The numbers tell a stark story: Tesla sales dropped 36.2% in Germany in May while Chinese automaker BYD saw an 824% increase. In the UK, Tesla deliveries plummeted 45%, part of a broader trend of market share erosion in Europe and China.

"Chinese automakers release new models annually with major upgrades, outpacing Tesla's innovation cycle," said Wei, automotive technology reseracher. "The long-awaited Model Q/Model 2 keeps getting delayed, costing Tesla market share in critical markets."

When Mars Dreams Meet Washington Realities

The falling-out has exposed the fragility of the transactional relationship between Silicon Valley disruptors and Washington power brokers.

Musk, who as recently as late May received public praise and symbolic gifts from Trump, now finds himself cast out and potentially facing the full regulatory and contractual might of the federal government—just as Tesla faces unprecedented competition.

"Musk is busy with xAI, brain interfaces, and space missions, leaving Tesla strategy execution fragmented," observed a former Tesla executive who requested anonymity. "This raises investor doubts: Is Musk still focused on Tesla when he's picking fights with the President?"

The conflict has unsettled Republican strategists, who fear it could erode party unity and fundraising ahead of the 2026 midterms. Musk has hinted at leaving the Republican Party to form a new political group, a prospect that could reshape both tech and political landscapes.

Quantifying the New Political-Risk Premium

Professional investors are scrambling to model the impact of potential retaliatory measures. Our analysis indicates several key vulnerabilities:

**Consumer EV credit **: $1.9 billion pre-tax exposure (approximately 9% of Tesla's EBIT), with a 70% probability of loss as the bill has already advanced to the House.
Zero-Emission-credit sales: $1.8 billion at risk, though with a lower 25% probability of elimination.
NASA/DoD contracts via SpaceX: $22 billion backlog, with a 40% chance of partial suspension, potentially costing $0.9 billion annually over a two-year delay period.
Advanced-manufacturing tax credits: $0.6 billion exposure with 60% risk.

The net present value impact approaches $41 billion—approximately 10% of Tesla's enterprise value at a 10% discount rate.

"The Street hasn't fully priced a mid-probability freeze of federal launch payments," noted a sovereign wealth fund manager. "NASA can sole-source Boeing Starliner or extend Soyuz leases—expensive but feasible options that give the White House leverage without crippling ISS operations."

The View from Wall Street: Three Scenarios

Based on current information, investors are modeling three primary scenarios for Tesla:

Détente Scenario (25% probability): Trump and Musk reach an accommodation, preserving contracts and subsidies. WACC: 9%, 2025-28 CAGR units: 15%, Terminal auto margin: 20%, 12-month price target: $325.
Base Case (55% probability): Continued tension with partial impacts on subsidies but preserved critical contracts. WACC: 10.5%, 2025-28 CAGR units: 8%, Terminal auto margin: 16%, 12-month price target: $210.
"Contract Kill" Bear Case (20% probability): Full implementation of Trump's threats, significant contract losses. WACC: 11.5%, 2025-28 CAGR units: 5%, Terminal auto margin: 14%, 12-month price target: $140.

"Tesla's moat has narrowed to software and charging network," explained a portfolio manager at a major asset management firm. "Without a defensible low-end product, volume growth must come from price cuts—untenable as subsidies fade."

The Billionaire's Gambit

What makes Musk's stance particularly intriguing is his apparent willingness to risk so much. Some observers point to the unique position of American billionaires.

"Musk may seem reckless, but as a billionaire in America, he's relatively safe," observed a political economist at Stanford University. "The U.S. justice system rarely punishes the ultra-rich compared to its high incarceration rate for regular citizens. This emboldens Musk to act without fear of personal consequences."

Whether this calculation proves correct remains to be seen. Upcoming catalysts include the mid-June House Tax Bill vote, Tesla's Q2 delivery release on July 2, and NASA budget markups in late July—all potential inflection points in this high-stakes drama.

Investment Implications: Beyond Tesla

For investors, the ripple effects extend beyond Tesla to several relative winners:

BYD: Positioned to accelerate European market-share gains amid Tesla's political troubles.
GM: Potential beneficiary if the EV subsidy pool gets redirected to domestic legacy automakers.
Defense Primes: Lockheed Martin and Northrop Grumman could back-fill NASA launches if Dragon is sidelined.

Sophisticated traders are implementing various strategies to navigate this unprecedented political-business conflict:

Hedging existing long positions: August 2025 250/200 put spreads, funded with 360 call sales.
Relative-value trades: Long BYD vs. short Tesla (1:4 notional ratio) to exploit political-risk asymmetry.
Event-driven strategies: Short Tesla credit default swaps paired with long positions in defense primes to offset broader risk-off moves if NASA contracts are rebid.

The Final Analysis: Power, Money, and American Innovation

What began as a policy disagreement has metastasized into a clash that threatens to reshape both the political and business landscapes. At stake is not just Tesla's market capitalization but America's technological edge in electric vehicles and space exploration—and potentially the balance of power in Washington.

"Musk's greatest asset—political optionality—has flipped into his biggest liability," concluded a veteran Wall Street strategist. "Until we see either a negotiated carve-out protecting NASA/DoD work or concrete progress on a sub-$30,000 model, Tesla deserves a structurally higher risk premium."

For a man who built his fortune selling dreams of Mars colonization and sustainable energy, Elon Musk now faces his greatest challenge yet: a political reality where even the wealthiest Americans can find themselves subject to the whims of presidential power.

Disclaimer: This analysis is based on current market data and established economic indicators. Past performance does not guarantee future results. Readers should consult financial advisors for personalized investment guidance.