U.S. midterms deal a blow to Elon Musk. What are the risks for Tesla and SpaceX?

Elon Musk was one of the biggest losers of the U.S. midterm elections, Bloomberg reckons. The world’s richest person was the Republican Party’s biggest donor this election cycle, and his biggest bet was on Texas, where he moved to and where Tesla and SpaceX are headquartered. Democrats scored their biggest victory in the state in decades, and Governor-elect Gina Hinojosa is a staunch opponent of data center construction. Shares of Tesla and SpaceX, both of which are developing AI, fell 3.8% and 4.1%, respectively, in premarket trading on Wednesday.

Musk spent more on the midterms than any other individual donor, Business Insider reports. He donated $446 million, with more than $205 million going to Texas races, according to filings reviewed by Bloomberg.

Texas accounts for just under 30% of the U.S. data center capacity slated to come online in 2028, by far the largest share of any state, research house SemiAnalysis said. “A few months of lost time in that market can move the national number,” its analysts wrote ahead of the election. Hinojosa plans to impose a moratorium until lawmakers pass legislation that would, among other things, end tax incentives for data centers, SemiAnalysis said.

Hinojosa’s victory immediately puts around 13 gigawatts of planned data center capacity in Texas at risk, enough to power around 10 million homes at once, GLJ Research analyst Gordon Johnson wrote. He expects projects that have secured power but still lack state environmental permits to be delayed by 12-18 months.

Democrats won statewide races in Texas for the first time in decades. The state’s next U.S. senator will be James Talarico, who repeatedly criticized Musk and likened his victory to the biblical story of David and Goliath, Business Insider reports. “The richest man in the world, the most powerful man in the world and the entire Washington, D.C., establishment,” Talarico said in his victory speech, listing the forces his campaign had faced down.

The election results could have serious consequences for Musk’s companies and cloud the outlook for their stocks, Bloomberg reports. The so-called blue wave in the midterms poses two risks: one, it heightens concerns about tighter AI regulation and, two, it casts doubt on a potential merger between the electric-vehicle maker and the rocket, AI, and satellite giant.

Though Congress cannot block a deal on its own, Democrats could use their stronger position to put up hurdles and slow the merger, according to Vikram Rai of First New York. “Both of these stocks have major headline risk if we get a blue sweep,” he said last week. Few CEOs are as closely tied to U.S. President Trump and the Republican Party as Musk, Bloomberg notes.

Musk has already factored in the political calendar. Bloomberg previously reported, citing sources, that a merger announcement was expected by the first half of next year, with the aim of closing the deal while Trump is still in office.

SpaceX, which became one of the world’s most valuable companies when it went public this year, brings in billions of dollars from U.S. government contracts. Its shares have largely traded sideways since its June IPO, Bloomberg reports.

Tesla shares have risen 34% from their late-July low, helped by investor optimism about its AI products and a potential merger with SpaceX.

“Data centers in space looking pretty appealing right now,” Musk wrote on X, alluding to concerns that Democratic victories could lead to tighter oversight of data center construction. “Guess my election-interfering space lasers didn’t work this time,” the billionaire joked in a subsequent post.

The surprise Democratic victory in Texas was part of a broader wave. The party won control of the U.S. Senate by flipping Republican-held seats in traditional GOP strongholds such as South Carolina, Kansas, and Ohio. Democrats also will take control of the House of Representatives, which could make it much harder for Trump to advance his agenda over the rest of his term.

Investors see the outcome as a potential setback for stocks and the dollar given the prospect of tighter regulatory scrutiny, especially for fast-growing tech and AI companies, Bloomberg notes.