Tesla shares jump 5% after all-out Trump-Musk feud wipes out $150B market value

Tesla shares rebounded by 5% on Friday after a sharp decline that erased $152 billion in market value, triggered by a public feud between Elon Musk and Donald Trump. The spat, which included Musk criticizing a Trump-backed spending bill that could cost Tesla billions in lost EV tax credits and sales, led to significant gains for Tesla short sellers. Analysts suggest a reconciliation between Musk and Trump could provide relief for Tesla shares, which are facing headwinds from policy changes and increased competition from companies like BYD.

Analysis

Tesla's stock exhibited significant volatility, rebounding over 5% on Friday following a substantial decline that erased $152 billion in market value. This sharp drop, marking Tesla's worst single-day performance in over four years, was directly precipitated by a public feud between CEO Elon Musk and President Trump, during which Musk's personal net worth fell by an estimated $27 billion and Trump threatened Tesla's government contracts. The core of the dispute involved Musk's criticism of a Trump-backed spending bill. According to JPMorgan analysts, this bill poses a considerable financial risk to Tesla, potentially eliminating EV tax credits worth up to $7,500 per buyer—which could reduce Tesla's annual profit by $1.2 billion—and introducing a new $250 annual fee for EV drivers. Compounding these concerns, a recent Senate initiative to block California's EV sales mandates could further decrease Tesla's sales by $2 billion. JPMorgan estimates that these combined measures threaten to eliminate approximately half of Tesla's projected $6 billion+ in earnings before interest and taxes for the current year. This politically charged environment coincides with existing market challenges for Tesla, including plummeting sales in major European markets, increased competition from rivals such as BYD, and damage to the brand's reputation stemming from protests against Musk's perceived role in government spending cuts. The stock's downturn on Thursday resulted in a $4 billion single-day gain for Tesla short sellers, who have accumulated $7 billion in profits year-to-date, with Tesla being the second most shorted stock in the US by total position value. Wedbush Securities analyst Dan Ives suggested that a reconciliation between Musk and Trump would offer 'huge relief' for Tesla shares.

Key Decisions for Investors

• Investors should closely monitor developments in the relationship between Elon Musk and President Trump, alongside legislative progress on the spending bill and California's EV mandates, due to their direct and significant potential impact on Tesla's profitability and market valuation.
• Given the heightened stock volatility, substantial policy-related financial risks, and increasing competitive pressures, it may be prudent for investors to reassess their risk exposure to Tesla and consider the implications for the company's long-term growth trajectory.
• Pay close attention to Tesla's upcoming sales figures, particularly in European markets and relative to competitors like BYD, as well as any further analyst revisions, to gauge the fundamental impact of these challenges beyond the political rhetoric.