Elon Musk, the CEO of Tesla, and President Trump are currently embroiled in a tense conflict, and it didn’t take long for Musk’s businesses—including Tesla—to be thrust into the midst of it like children in a divorce.
Here, we’ll concentrate on the actual effect on Tesla’s business rather than the stock price, which is heavily influenced by sentiment and resembles a meme stock.
Following Trump’s election, Tesla’s stock soared, primarily due to expectations of corruption between the federal government and Musk, who spent almost $300 million to help elect Trump.
As a result of Musk publicly betraying Trump, Tesla’s stock fell 14% yesterday.
Tesla’s primary business has not changed during the post-election surge or current decline. Its energy business is expanding, but not by enough to offset the reduction in EV deliveries, while its car business is clearly in decline.
Even though Musk has been repeatedly wrong about Tesla’s ability to solve self-driving technology for years, investors are holding onto the hope that this time he will be correct. Musk has now started to change course and is using “heavy teleoperation” to run an internal ride-hailing fleet in a geo-fenced area of Austin, Texas.
In light of this, how would Tesla be affected by its CEO’s current conflict with the head of the US federal government and his supporters in the Senate and Congress?
Problems with branding
Over the past few years, Tesla has experienced significant brand problems due to its CEO’s growing political views, which have intensified since he started interacting with Trump personally.
Musk offended a sizable portion of Tesla’s customer base, which leans left, and it resulted in the “Tesla Takedown” protests around the globe. By hosting what amounted to a Tesla infomercial on the White House grounds, Trump attempted to assist Tesla in attracting new customers from the right of the political spectrum, according to some.
But as we’ve already pointed out, Tesla has no chance of attracting clients from rural and red state locations.
In only a few hours, Musk has labelled Trump an ingrate, implied that he was a paedophile, and referred to his signature legislation as an “abomination”. As a result, MAGA supporters are probably going to stop supporting Tesla.
In North America and Europe, Musk’s influence on the brand has hurt Tesla the most.
This year, Tesla’s sales in Europe are expected to drop by almost 50%, and the company has completely destroyed its market in Canada.
Although there is no denying the effect on the US brand, delivery haven’t been significantly impacted yet for a number of reasons.
To begin with, Tesla has continued to offer record-breaking discounts and incentives to US consumers who purchase its cars.
Second, when it comes to electric vehicles, the US market is the least competitive globally. Since Chinese EVs are essentially prohibited in the US and many international manufacturers do not import their full EV lines, Tesla’s primary rivals are other US automakers.
Finally, there is still a $7,500 incentive available in the US for the purchase of new electric vehicles, but it is anticipated to expire soon, so there is some pressure to buy now.
Rewards
Musk contributed over $300 million to Trump’s campaign, which called for eliminating the $7,500 incentive for buying electric cars.
During the campaign, the President also made blatant false claims about electric vehicles in general. Musk claimed shortly after that “Trump was right about everything“.
The EV tax credit and any other renewable energy incentives were always going to be eliminated. Musk openly concurred with this, but he also stated that he believes fossil fuel subsidies, which much outweigh those for renewable energy, ought to be eliminated.
Trump ran on a platform of restarting unprofitable coal power plants and drilling for more oil in the US, but he never indicated that he intended to accomplish that.
The EV tax credit, the 30% tax credit for solar, wind, and energy storage (ITC), the incentives to manufacture batteries in the United States, and CARB’s ZEV credits are all officially being eliminated by the “Big Beautiful Bill,” which was approved by Congress and is currently being debated in the Senate.
Although Trump and the GOP had hinted at all of this earlier, including during the campaign that Musk supported, some have claimed that this is the true reason why Musk turned on Trump and attacked the measure.
Musk has been largely away from Tesla for the past year, but he just made a comeback and was given multiple briefings. Musk may now fully understand the ramifications of eliminating all solar, battery, and EV incentives.
In Q1 2025, Tesla would have had a loss if not for ZEV credits, the EV tax credit, the ITC, and battery manufacturing credits.
Investigations, sanctions, and prohibitions
Many contended that Musk’s true motivation for supporting Trump was to appease federal agencies who were looking into him and his businesses.
Investigations by the SEC, DOJ, NHTSA, US Labour Board, and FTC have been conducted into Musk and his businesses.
After Musk joined the administration, he pushed for new heads of those agencies and drained DOGE of its resources, which led to some of those probes becoming more intense.
There’s a chance that those investigations will pick up steam again now that he has turned on Trump.
Trump has already stated in a number of posts on Truth Social that he intends to take revenge on Musk’s businesses.
The SEC may specifically take action against Musk and Tesla because of recent fabrications on Tesla’s demand.
Trump might put pressure on the NHTSA to halt its impending pilot program in Austin or possibly recall FSD features, as the agency has been looking into Tesla’s Full Self-Driving program for a long time.
I believe that things will settle down. In my opinion, after Musk was fired, he recognised that he had little authority over Trump and decided to test the waters in order to implement his backup plan, which is to have Trump impeached and replaced by JD Vance.
He immediately backed out after realising he lacked the political clout to accomplish that.
It’s still not great, and I could definitely see things getting worse. In particular, Musk said that he is prepared to exert pressure on the political establishment in order to achieve his goals.
Trump might be concerned about it and choose to curtail Musk’s influence, which is heavily dependent on Tesla’s soaring stock price.
However, the reality is that Tesla would suffer greatly from this bill, even if nothing changes and Musk and Trump end their feud.
The whole EV market will be negatively impacted. As purchasers attempt to take advantage of the tax credit, EV will have a fantastic second half of the year if the bill passes, but 2026 will be a challenging year.
Around my opinion, Tesla will begin to lose money around 2026. The corporation is beginning to be crushed by competition in China and Europe. Due to Tesla’s willingness to lower its gross margins through discounts, the US is the only market where sales are not plunging.
Without the tax advantage, Tesla will need to do more research on that topic. It becomes negative when you take away the billions of dollars that Tesla has been receiving in ZEV and battery production credits.
When the rest of the globe switches to electric cars, it will ultimately destroy the US auto industry as a whole.