Elon Musk at a crossroads between "economy" and "politics"

Elon Musk’s recent decision to establish a third political party in the U.S. has sparked fierce criticism from Tesla shareholders. After Musk resigned from his advisory role in the Trump administration, Tesla shares experienced significant growth. Investors and market analysts believed that Musk’s full return to Tesla’s headquarters would naturally shift his focus away from political entanglements and back toward short- and long-term stock performance. However, this optimism faded far sooner than expected.

Musk and Trump have entered a new phase of mutual confrontation, culminating in Musk’s announcement to found a political party called "America." While many Americans have welcomed this move as a potential end to the traditional dominance of the Democratic and Republican parties, Tesla shareholders and those who opposed Musk’s entry into the 2024 presidential race have every reason to be alarmed.

A 6.8% drop in Tesla shares during the final trading day of last week wiped out $79 billion from the company’s valuation, deeply worrying shareholders. Musk’s foray into a long-term and somewhat unpredictable political battle has widened the gap between Tesla’s intrinsic value and its market value. Following this sell-off, Tesla’s market cap fell from just over $1 trillion to about $921 billion. Musk’s personal stake in the company lost nearly $15 billion, bringing his holdings’ value below $120 billion. Although Musk, with a fortune of around $400 billion, remains the world’s richest person, this offers little comfort to Tesla’s smaller or even institutional investors.

Some close to Musk argue he should have avoided a political clash with Trump after leaving federal advisory roles, as the U.S. president wields unique powers that the White House could leverage against both Musk and Tesla at a steep cost. Nevertheless, Musk remains convinced that taking this risk is necessary, believing the "America Party" can strategically target key congressional seats.

Most senior Wall Street analysts agree that Musk’s deeper plunge into politics and his open confrontation with Republicans runs directly counter to what Tesla’s investors want. Yet, many shareholders are increasingly frustrated by Musk’s refusal to stay clear of political disputes.

Trump has mocked Musk’s plans to establish the "America Party" as "ridiculous" and has launched fresh attacks against the world’s richest man. While these attacks are currently limited, they may escalate — especially if the Republican Party feels threatened during the midterm elections. The recent sharp sell-off of Tesla shares is closely tied to these political uncertainties.

Musk seems determined to simultaneously seek revenge against Trump, the Republican Party, and Senate allies of the White House who helped pass Trump’s desired public budget reforms. Some Democratic senators might even secretly strike deals with Musk’s economic team in key battleground states for the upcoming November 2026 midterms.

Musk is determined to prove his political influence over the midterms to both politicians and the American public. However, if he fails and Republicans retain control of the House of Representatives and Senate next year, Musk will likely have to bear the cost of this risky economic and political gamble. Tesla’s stock is expected to face a turbulent and volatile year ahead.