What will happen to Tesla stock if Trump cuts Musk off?

A public dispute between Elon Musk and President Trump over government subsidies and a proposed bill eliminating EV tax credits led to a 14% drop in Tesla's stock (TSLA) on June 5, erasing over $150 billion in market capitalization. Trump threatened to strip Tesla and SpaceX of subsidies and contracts, highlighting Tesla's increasing reliance on regulatory credits, which in Q1 2025 exceeded the company's net income, and the federal EV tax credit, both of which are vital to Tesla's financial performance and sales.

Analysis

A public confrontation between Elon Musk and President Trump concerning a legislative proposal to eliminate EV tax credits and reduce clean energy funding has significantly impacted Tesla (TSLA), triggering a 14% decline in its stock price on June 5, which erased over $150 billion in market capitalization. This event underscores Tesla's pronounced and growing dependence on government subsidies and regulatory credits, a vulnerability exacerbated by President Trump's threat to revoke existing federal support for Tesla and SpaceX. Financial data reveals that Tesla's reliance on regulatory credit revenue has escalated substantially; in Q1 2025, these credits amounted to $595 million, representing 145% of the company's $409 million net income. This is a sharp increase compared to Q1 2024, when credits were 31.8% of net income ($442 million in credits vs. $1.39 billion net income), and for the full year 2024, where they constituted 38.9% ($2.76 billion in credits vs. $7.09 billion net income). Furthermore, the federal EV tax credit, potentially offering up to $7,500 off consumer purchase prices, is a critical driver for Tesla's sales volumes, particularly amidst slowing EV demand, rising vehicle prices, and intensifying competition. The incident highlights that Tesla's financial performance is not solely a function of innovation but is also heavily influenced by government policy, exposing the company to significant risks from shifts in the political and regulatory landscape.

Key Decisions for Investors

• Investors should critically re-evaluate Tesla's risk profile considering its demonstrated sensitivity to political rhetoric and potential changes in government subsidy programs.
• Closely monitor legislative developments regarding EV tax credits and clean energy funding, as these policies are directly tied to Tesla's profitability and sales projections.
• Factor in the heightened potential for stock volatility due to political uncertainties and the company's significant reliance on regulatory credits, especially given existing market concerns about EV demand and competition.