The Announcement That Triggered the Crash

On July 5, Musk took to X (formerly Twitter) with his latest bold proclamation:

“By a factor of 2 to 1, you want a new political party and you shall have it!… Today, the America Party is formed to give you back your freedom.”

He framed the America Party as a way to gain influence in a few critical congressional seats—enough to sway major legislation. The declaration came in response to his opposition to Trump’s recently passed spending bill (aka the “Big Beautiful Bill”), which Musk argued was fiscally irresponsible and damaging to innovation.

 Markets React: Tesla Slides 7%

In a brutal response, Tesla shares dropped 6.8–7% in pre‑market and early trading the following Monday, settling around $293–294, down from about $315–320. This steep fall erased approximately $68 billion in market value in a single session.

Market analysts pegged the reaction on two fronts:

Investor concern that Musk’s attention and Tesla’s brand may be compromised.

Political spillover, with President Trump threatening to pull subsidies and contracts from Musk’s companies.

 

Dan Ives of Wedbush said, “Musk diving deeper into politics is exactly the opposite direction Tesla investors want,” citing a growing sense of “exhaustion” among shareholders.

Political Fallout: GOP Leaders Unimpressed

President Trump was brief but harsh:

“This is ridiculous… He’s gone completely off the rails,” Trump declared on Truth Social, labeling Musk’s foray as politically incoherent and ill-timed given ongoing financial losses at Tesla.

Trump also warned that he may terminate government contracts and subsidies for Musk’s ventures—including Tesla and SpaceX—if their public feud escalates. Republican operatives and analysts echoed those concerns, warning that the America Party could fracture the GOP base at a time when unity is vital heading into the 2026 midterms.

 Underlying Business Challenges: Sales Slump & Credit Loss

The stock plunge occurred against a backdrop of deeper troubles for Tesla:

EV deliveries declined 13% in both Q1 and Q2 of 2025.

Critical tax-credit incentives under the “Big Beautiful Bill” were removed—a revenue stream that historically added over $595 million in Q1 via emissions credits.

 

 

Tesla’s financials, propped up by credit sales, were now in the red without them.

Competitors like BYD, Great Wall, and European EV makers are seizing share while Tesla’s aging lineup falters under increasing scrutiny.

 Investor Sentiment: ‘Stay Out of Politics’

A Morgan Stanley survey of 245 Tesla investors revealed 85% believed Musk’s political engagement was harming Tesla—negative or extremely negative.

Similarly, in a more recent poll by Azoria Partners, calls intensified for the board to reassess Musk’s suitability as CEO, especially if political entanglements persist.

The Board’s Dilemma: Oversight or Complicity?

Tesla’s board—long considered soft on Musk—now faces mounting pressure. Amid investor unrest, critics argue oversight has been “supine”, unable to curb Musk’s personal ambitions.

Legal expert Ann Lipton pointed out that non-public companies often face board intervention when leadership distractions harm core business—a step Tesla has yet to take.

Broader Implications

a) Acceleration of Tesla Takedown Protests

The ongoing “Tesla Takedown” movement—aimed at reducing Musk’s influence by encouraging divestment—has gained new momentum amid political tensions. Protests at stores and rallies have targeted Tesla over political and labor controversies.

b) Regulatory & Legislative Risks

With Trump’s wrath on full display, Tesla now faces the threat of lost government contracts, higher tariffs, and further cuts to EV tax incentives.

c) Strategic Gamble or Brand Sabotage?

While Musk claims the America Party is “enough to serve as the deciding vote” on key laws, critics warn that major political investment distracts from Tesla’s most critical launch phases—robotaxis, humanoids, and autonomous software.

 Musk vs. Markets: A History

This isn’t the first time Musk’s political moves have hurt Tesla’s valuation:

In March, Tesla shares fell 14% after Musk and Trump clashed over budget cuts—erasing roughly $152 billion in market cap.

Between December peak and early summer 2025, shares sank over 40–50%, attributed to Musk’s political involvement and Tesla’s sales slump.

 

 Stakeholder Reactions: Mixed & Muddy

Musk loyalists argue that realigning politics and business serves America’s broader interests.

Institutional investors and Tesla bondholders worry Musk is threatening an enterprise they still value highly.

Competitors and regulators see Musk’s moves as opening the door to legislative vulnerability—they’re watching closely.

 

 

What Happens Next

Near Term

Tesla’s Q2 earnings on July 23 will be closely watched. Meeting or missing delivery forecasts could further fuel the stock’s volatility.

The America Party’s political strategy—seat targets, campaign funding, messaging—must materialize quickly to sustain legitimacy.

 

 

Medium Term

President Trump retains power to influence Tesla’s future revenues via subsidies or contract allocations.

A bruising midterm election cycle could fracture the Republican base and limit third-party traction, eventually forcing Musk’s hand.

 

 

Long Term

Tesla must navigate an uncertain road: continue on the political path and risk alienating stakeholders—or refocus on innovation and recovery.

Musk’s leadership at Tesla seems increasingly tied to his personal ambitions. Whether shareholders accept this may define the company’s future.

 

 Final Analysis

Elon Musk’s America Party decision may have delivered the political spotlight he sought—but his timing has proven disastrous for Tesla. A nearly 7% stock drop, massive market cap loss, and erosion of political goodwill appear to be the price of mixing boardroom responsibilities with campaign rallies.

Investors, board members, and consumers alike now face a stark question: Is Tesla a vehicle for automotive innovation—or a campaign tool for Elon Musk’s political crusade? If he continues to juggle both, the fallout could extend far beyond a one-day dip—it may reshape Tesla’s identity, investor trust, and ultimate competitiveness.

 Public Voice: Investors & Reddit Weigh In

Investor sentiment spilled onto social media:

“Tesla stock is tanking because Musk keeps playing SPAC-man-politician. Enough!” – r/stocks 
“They want him to just run Tesla. Politics is not part of the pledge deck.” – r/stocks

On Reddit’s RealTesla, the sentiment echoed:

“Musk’s gone missing on the CEO front—sales falling, protests rising, and his focus is on building a new party?”

Conclusion: A Precedent in Balance

Elon Musk’s GO‑big political gamble marks a turning point—not only for Tesla’s value but for the tech‑politics nexus it embodies. While his claim to establish a political foothold may invigorate his supporters, the blowback from stock markets, investors, Republicans, and even Donald Trump reveals the risks of blending business leadership with political ambition.

Tesla’s future, once defined by acceleration, autonomy, and sustainable innovation, now may hinge on whether Musk can pivot—or perseveres down a path that could alienate much of his core constituency.

Want a deep dive into Tesla’s Q2 numbers, implications of lost EV tax credits, or an analysis of third-party political viability in the US? Just say the word.