Tesla shares dropped sharply on Monday morning following CEO Elon Musk’s announcement of a new political party a move that triggered a strong public rebuke from U.S. President Donald Trump.
The electric vehicle giant’s stock fell as much as 7.6% in premarket trading before recovering slightly to remain down 6.5% by 7:48 a.m. ET.
The market reaction followed Musk’s Saturday announcement that he is launching a political alternative to the dominant Republican and Democratic parties, called the America Party. His move into third-party politics appears to have reignited tensions with Trump, who criticized the idea as disruptive and unwise.
“I’m saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks,” Trump posted Sunday evening on Truth Social, referring to Musk’s political ambitions. Speaking to reporters earlier that day while boarding Air Force One, Trump called the move “ridiculous” and warned it would only create confusion.
Tesla investors are showing concern over two key issues: the potential for Musk’s political rift with Trump to trigger retaliatory action against electric vehicle subsidies, and the possibility that Musk is becoming distracted from his corporate responsibilities. Neil Wilson, a strategist at UK-based Saxo Markets, noted that markets had welcomed Musk’s previous decision to step back from politics, but are now alarmed by his return.
“Elon Musk appeared to be refocusing on Tesla earlier this year, which was reassuring to investors,” Wilson wrote in a research note. “But this move raises fears that he’s once again being pulled into political battles that could affect Tesla’s future.”
Musk’s latest criticism of Trump stems from opposition to the president’s recently signed “Big, Beautiful Bill,” a sweeping tax and domestic policy measure. Musk warned the bill would dangerously increase the national deficit, stating on his platform X that, “When it comes to bankrupting our country with waste & graft, we live in a one-party system, not a democracy.”
In the same post, Musk declared the formation of the America Party, which he described as a vehicle to “give you back your freedom.” Trump responded by dismissing the viability of third parties in U.S. politics, saying they had never succeeded and only lead to “Complete and Total DISRUPTION & CHAOS.”
Tesla’s market performance has already been under pressure in recent months. Last week, the company reported a record 13.5% drop in second-quarter vehicle sales compared to the same period in 2024. For the full year of 2024, Tesla posted its first-ever annual sales decline as a publicly traded company, with a modest 1% dip.
The automaker also risks losing its position as the world’s leading electric vehicle producer by volume to Chinese rival BYD. While BYD has not yet entered the U.S. market, its global growth poses a serious competitive threat to Tesla’s dominance in the EV space.
Adding to investor unease, Musk’s brief stint in public office earlier this year where he led the Department of Government Efficiency and oversaw widespread federal layoffs drew international criticism and sparked protests outside Tesla showrooms. Although he stepped down from the role in May, hopes that he would fully return to his corporate responsibilities now appear premature.
With Tesla shares already down nearly 23% in 2025, Musk’s political pivot could deepen the company’s challenges. While his influence remains strong in tech and automotive circles, the mounting clash with President Trump and broader political engagement are raising fresh questions about the stability of Tesla’s leadership at a critical moment for the company.
