"Stocks will be under pressure": the market's first reaction to Musk's political ambitions

Investors staged a sell-off in Tesla shares after the company's chief executive Ilon Musk pledged to form a new party in the US, with US President Donald Trump saying in response that the entrepreneur had "lost his mind". Musk's move speaks volumes about his political ambitions for the long haul - and further unnerved Tesla shareholders who had expected him to focus on its weakened business. 

Tesla shares crashed 7% in New York premarket trading on July 7 after falling 4% in Frankfurt. That's how investors reacted to CEO Ilon Musk's announcement of a new political party in the U.S. that will seek 2-3 seats in the Senate and 8-10 seats in the House of Representatives. According to Musk's plan, his new party will act independently, cooperating with both Democrats and Republicans and will be able to influence the adoption of laws with a minimal preponderance of votes.

US President Donald Trump responded by once again lashing out at his recent associate with criticism, calling his decision "laughable."  "It pains me to watch Ilon Musk completely go off the rails, turning into a REAL CATASTROPHY in the last five weeks," the wrote  American leader on the social media network Truth Social.

Amid a new round of confrontation between Musk and Trump, investment firm Azoria Partners has indefinitely postponed next week's scheduled launch of a Tesla investment exchange-traded fund (ETF) to invest in stocks and options of the world's most expensive automaker. "I urge the board to meet immediately and ask Ilon to clarify his political ambitions and assess whether they are compatible with his responsibilities as head of Tesla," Azoria chief James Fishback addressed on social media X.

Shares of Rocket Lab, a rival developer of commercial launch vehicles to SpaceX, jumped by 3.5% on the New York premarket. AST SpaceMobile, a rival to SpaceX-owned satellite network Starlink, rose 1.5%. Rocket Lab and AST SpaceMobile are among a list of five companies that could benefit from the conflict between Musk and Trump.

At the same time, the shares of three other companies from this list - electric car manufacturer Rivian, robot developer Serve Robotics and Alphabet with its robotaxi Waymo - went down on the premarket. Rivian shares are under pressure from Trump's cancellation of tax benefits for electric cars. With Serve Robotics' modest capitalization of $615 million, its stock performance is more likely to be driven by speculation around the AI boom than by Musk's actions. Alphabet's stock price is primarily influenced by the earnings of its search engine, while investor interest in Waymo remains secondary, notes Barron's.

Analyst Dan Ives of Wedbush, one of Tesla's biggest fans on Wall Street, reiterated an Outperform rating on the company's stock on July 6 (Outperform, consistent with a buy recommendation on these securities), and maintained a $500 target price - 59% above the mark at the last close of trading on July 3 before the holiday weekend. But as Trump and the Republican Party begin to view Musk as an opponent rather than an ally, "Tesla shares are likely to come under pressure in the near term," Ives emphasized in a note to clients seen by Oninvest. After a brief period of stability where Musk distanced himself from cryptocurrencies and politics, his announcement to form a political party has caused frustration among shareholders and created tension, he said.

With the rapid development of autonomous driving and artificial intelligence technologies, Tesla and Musk do not need to escalate relations with Trump, who may create additional barriers to the activities of Tesla and SpaceX in the coming years, the Wedbush analyst emphasized. Musk needs Tesla as a CEO and strategic leader, not as an active participant in political battles, Ives added. He did not rule out that the automaker's board of directors may intervene if Musk's political activity develops further.

Another Tesla optimist, Rayliant Global Advisors Chief Investment Officer Jason Xu, called Musk's decision a "genius move" that could increase the businessman's political clout and ultimately help protect his company. "We will see initial volatility," quotes Bloomberg economist. - Some investors will be concerned that Ilon is distracted, and perhaps many don't yet see the move as the best way to protect Tesla from the wrath of the current Trump administration."

The rift between Musk and Trump occurred in early June, a few days after the Tesla CEO resigned as head of the Department of Government Efficiency (DOGE) and promised to focus on business, something investors had been waiting for a long time. At the same time, Musk began publicly criticizing Trump's tax bill, leading to an absentee spat with the president on social media. Tesla's shares then crashed by 14% in a day, the company lost $150 billion in market value, and the entrepreneur's own capital dropped by $27 billion.

After a brief pause, Musk last week renewed his criticism of the bill, stating that the document provides "handouts to industries of the past while seriously damaging industries of the future" and that the Republican congressmen who voted for it "should hang themselves in shame".

This article was AI-translated and verified by a human editor