Tesla's $153b crash: How Elon Musk's Trump alliance unleashed a crisis for investors
For Tesla shareholders, Elon Musk’s alignment—and subsequent fallout—with Donald Trump has evolved into a double disaster. The saga unfolded in two dramatic acts: the first, a protracted decline as Musk immersed himself in the federal initiative dubbed "DOGE," aligning Tesla’s CEO with far-right figures and alienating global consumers. The second, a sudden freefall ignited by a public feud with Trump himself, culminating in a catastrophic 14.3% stock plunge that erased $153 billion in Tesla’s market value.
Musk's Trump fallout sends Tesla stock spiraling. His erratic leadership and political feuds now threaten Tesla’s future and $800B market premium.
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From January to May, Musk’s political immersion distracted from critical challenges facing Tesla—declining market share in China, plummeting EV sales in Europe, and intensifying global competition. Rather than steadying the EV giant, Musk doubled down on personnel cuts while his attention remained fixed on Washington. This detachment proved costly. Tesla’s earnings tanked. So did investor confidence.
Eric Talley, a business law professor at Columbia University, likens Musk’s DOGE tenure to a flawed insurance policy. “Sitting close to the seat of decision-making offered Tesla strategic leverage,” he explains. “But now that’s morphed into a liability.” Following Musk’s acrimonious departure from the White House on May 30, Tesla didn’t see a renewed focus from its CEO. Instead, a fiery June 5th clash erupted between Musk and Trump, triggered by Musk’s scathing critique of the president’s “Great Big Beautiful Bill.”
The consequences were swift—and brutal.
Tesla shares nosedived, investors panicked, and the tech-forward automaker found itself not only struggling financially but politically vulnerable. Talley emphasizes a stark new reality: “Any social media flameout between Musk and Trump puts a target on Tesla’s back. That’s a danger Ford or GM doesn’t face.”
Industry experts argue that Musk’s controversial political adventures would be career-ending at any other company. “If his name had been Joe Dokes, he’d be gone in a nano-second,” says Charles Elson, governance expert and founding director of the Weinberg Center at the University of Delaware. “He did massive reputational damage.” Yet, Musk’s dominance over Tesla’s board—through control of 30% of its shares and director loyalty forged through lucrative stock options—has insulated him from accountability.
Even with his grip, Musk’s tenure faces legal tremors. A Delaware court last year nullified his $56 billion 2018 compensation package—two-thirds of his Tesla holdings. Tesla’s appeal to reinstate that award now carries new political and reputational risk. Talley believes the board, newly wary of blowback, may pivot toward a shareholder vote rather than restoring the package unilaterally.
But that scenario brings its own peril. If shareholders reject the award, Musk’s diminished equity stake could erode both his incentive to lead and his mythos as Tesla’s visionary. “You don’t want a CEO to take vengeance on the company,” warns Talley.
Tesla’s valuation is uniquely tied to that mythos. Despite mounting losses from its core auto and battery businesses, the company still boasts a $960 billion market cap—driven less by fundamentals than by belief in Musk’s promised transformation into a self-driving, software-first tech titan. Analysts calculate that Tesla’s true worth based on earnings might hover near $100 billion. The rest, over $800 billion, represents the “Musk magic premium.”
But as Musk’s erratic public behavior escalates and his political missteps multiply, that premium is under siege. For Tesla investors, it’s a no-win proposition: Musk exits, and the halo disappears. He stays, and the chaos continues. “He feels untouchable,” Elson notes, “but the burden he’s placing on Tesla is growing heavier by the day.”
The myth of Musk has long defied corporate norms. Now, the market is beginning to question whether it can continue to defy gravity.
