Tesla Stock Slumps on Trump-Musk Feud: Buy the Dip in ETFs?

Tesla shares (TSLA) fell 14.3% on June 5th amid a public feud between Elon Musk and President Trump, who threatened to revoke government subsidies for Tesla and SpaceX. Musk responded by suggesting decommissioning SpaceX assets and endorsing Trump's impeachment. Analysts recommend caution on Tesla and Tesla-heavy ETFs like NITE, XLY and TSLW, with the Zacks Consensus Estimate for the June quarter dropping from 46 to 43 cents; however, some suggest that Tesla's AI initiatives could offer some support.

Analysis

Tesla (TSLA) shares experienced a significant 14.3% decline on June 5, 2025, following a highly publicized dispute between CEO Elon Musk and President Trump, which introduced considerable uncertainty regarding government support for Musk's enterprises. President Trump threatened to revoke federal subsidies and contracts crucial to Tesla and SpaceX; SpaceX alone received $3.8 billion in federal funds in FY2024 and over $20 billion since 2008. This political clash exacerbates existing concerns about Musk's divided focus and the impact of his political activities, which previously contributed to global protests, boycotts, and Tesla reporting its lowest sales in three years in April. While Musk's distancing from Trump might alleviate some consumer sentiment issues, the potential loss of government backing, particularly given Trump's preference for fossil fuels, poses a substantial new risk. Tesla's heavy investment in AI, including autonomous driving and robotics, is presented as a potential mitigating factor. However, analyst sentiment reflects growing caution: the average brokerage recommendation is 2.68 (between Hold and Buy), and the Zacks Consensus Estimate for the June quarter has been revised downwards from 46 to 43 cents, with further reductions anticipated. The negative sentiment extends to Tesla-heavy ETFs, with TSLW slumping 17.3% and XLY falling 2.5%, although an actively managed ETF like TESL, which employs an options overlay, saw a comparatively smaller decline of 1.9%.

Key Decisions for Investors

• Adopt a cautious stance and consider remaining on the sidelines for direct investments in Tesla shares and unhedged Tesla-heavy ETFs until there is greater clarity on the extent of potential government policy changes affecting Musk's companies.
• Closely monitor developments regarding federal subsidies, government contracts for Tesla and SpaceX, and any shifts in President Trump's policies towards electric vehicles versus fossil fuels.
• For investors seeking to manage downside risk while maintaining some exposure, ETFs employing hedging strategies, such as TESL, may warrant consideration, though the overarching political and company-specific risks remain significant.