The development of the value of Tesla shares in 5 years. Source: Trading Economics

Political context

At the end of May, we informed you about Tesla's surpassing in the number of sales by BYD, which undoubtedly hurt the manufacturer, but there is a completely different reason behind last week's $126 billion drop in market capitalization, which is the largest ever recorded by this electric car manufacturer. The blow came from the highest level of American politics. President Donald Trump raised a warning finger for Elon Musk himself, threatening to cancel government contracts for all of his companies, Tesla, SpaceX, as well as the newly formed startup xAI.

The reason may surprise you. In his remarks, Musk strongly opposed Trump's budget bill because it did not include the necessary subsidies for electric cars or tax breaks for solar panels. In addition, if this law is recognized, each electric car owner will face an annual fee of $250, which Musk called a "disgusting abomination."

Disputes on social networks and in the Oval Office

With the words of both of the couple, it is important to stay for a while, because the tension is escalating especially on social networks, where Trump and Musk exchange very sharp comments that no one would have expected just a few months ago.

"Elon was starting to get on my nerves. I asked him to leave, I took away his EV mandate, which forced everyone to buy electric cars that no one else wanted, which he knew months in advance, and he just went crazy!" Musk did not wait with his reaction, on his own social network X. "Without me, Trump would have lost the election, the Democrats would have controlled the House, and the Senate would have been 51-49."

Weak sales and competitive pressure

The market reacted immediately to this news, but as mentioned above, the 14% decline comes in the phase of a broader correction trend.* The American manufacturer has been facing declining sales of electric cars in Europe for a long time, with its expected breakthrough autonomous taxi service in Austin, Texas, still delayed. On the contrary, while Tesla has not yet launched the service, Google's competitor Waymo is already actively operating commercial rides, at a solid growing pace.

Opportunity or warning?

Ironically, even in May, despite weak sales, Tesla shares grew by more than 22%, which again points to the fact that the price was supposed to rise only based on future potential, but the current situation reveals reality.* If Tesla does not promptly show concrete results in the field of autonomous technologies and does not ease tensions with Washington, the current fall may turn into a longer-term trend of loss of confidence,  And not only from the market, but also from the state, which has been its key partner so far. [1]

* Historical figures are not a guarantee of future returns.

[1] Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which is subject to change. These statements do not guarantee future performance. Forward-looking statements involve risk and uncertainty by their nature because they relate to future events and circumstances that cannot be foreseen, and actual developments and results may differ materially from those expressed or implied in any forward-looking statements.    

Warning! This marketing material is not and should not be construed as investment advice. Data relating to the past are not a guarantee of future returns. Investing in foreign currency can affect returns due to fluctuations. All securities trades can lead to both profits and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which is subject to change. These statements do not guarantee future performance. InvestingFox is a trademark of CAPITAL MARKETS, o.c.p., a.s., regulated by the National Bank of Slovakia.

Resources:

https://www.cnbc.com/2025/06/05/tesla-shares-musk-trump.html

https://www.cnbc.com/2025/06/05/trump-musk-crazy-government-contracts.html

https://www.cnbc.com/2025/06/04/musk-trump-tax-bill.html

https://www.nbcnews.com/politics/donald-trump/elon-musk-breaks-trump-agenda-rcna210746