TLDR
- Tesla stock fell nearly 7% on Monday, losing over $68 billion in market cap after CEO Elon Musk announced plans to form the “America Party”
- William Blair analyst Jed Dorsheimer downgraded Tesla from Buy to Hold, citing concerns over regulatory changes and Musk’s political involvement
- Tesla faces potential loss of over $2 billion in regulatory credit revenue due to elimination of CAFE fines in recent legislation
- President Trump called Musk’s political party move “ridiculous” and said the Tesla CEO had gone “completely off the rails”
- Tesla reported a 14% year-on-year decline in car deliveries in Q2, missing expectations while facing increased competition in China
Tesla stock took a beating on Monday as investors reacted poorly to CEO Elon Musk’s latest political venture. The electric vehicle maker lost more than $68 billion in market cap as shares dropped nearly 7%.
The sell-off came after Musk announced Saturday that he would form a new political party called the “America Party.” The billionaire said the party would focus on “just 2 or 3 Senate seats and 8 to 10 House districts.”
Musk suggested this strategy would be “enough to serve as the deciding vote on contentious laws, ensuring that they serve the true will of the people.” But investors weren’t buying it.
Wall Street Analyst Hits the Brakes
William Blair analyst Jed Dorsheimer added fuel to the fire by downgrading Tesla from Buy to Hold. The five-star analyst cited concerns over recent regulatory changes and Musk’s renewed political interest.
Dorsheimer pointed to the recent passage of the “Big Beautiful Bill” as a key trigger for his downgrade. While the removal of the $7,500 EV tax credit was expected, the elimination of corporate average fuel economy (CAFE) fines caught analysts off guard.
This regulatory change could cost Tesla over $2 billion in regulatory credit revenue. That’s a major hit to the bottom line that may force Wall Street analysts to revise their earnings models.
The analyst also noted that Tesla’s current valuation sits well above its tech peers. With slowing momentum and regulatory headwinds, Dorsheimer expects this premium to shrink.
Political Drama Creates More Headaches
Musk’s political involvement has been a sore spot for Tesla investors. The tech billionaire was instrumental in the so-called Department of Government Efficiency earlier this year, working closely with President Trump.
Many investors saw this as potentially damaging to Tesla’s brand. When Musk left DOGE in May, Tesla’s stock actually benefited.
Now his return to the political arena is making investors nervous again. Dan Ives from Wedbush Securities summed up the sentiment perfectly.
“Very simply Musk diving deeper into politics and now trying to take on the Beltway establishment is exactly the opposite direction that Tesla investors want him to take,” Ives said. He noted a “broader sense of exhaustion from many Tesla investors that Musk keeps heading down the political track.”
The situation got even messier when Trump weighed in. The president called Musk’s move to form a political party “ridiculous,” adding that the Tesla boss had gone “completely off the rails.”
The two have clashed over various policy areas, including Trump’s spending bill. Musk has criticized the legislation, saying it would increase America’s debt burden.
Business Challenges Mount
Beyond political distractions, Tesla faces real business challenges. The company reported a 14% year-on-year decline in car deliveries in the second quarter, missing expectations.
Rising competition, especially in key market China, continues to pressure the automaker. These operational headwinds make Musk’s political focus even more frustrating for shareholders.
Dorsheimer noted that investor confidence may improve if Tesla shows progress in self-driving technology. But for now, the focus remains on Musk’s latest political adventure.
Wall Street currently gives Tesla a Hold consensus rating based on 14 Buys, 12 Holds, and nine Sells. The average price target of $293.09 implies a 0.1% downside potential from current levels.
Tesla stock has declined 20.2% over the past six months as investors grapple with slowing growth and Musk’s various distractions.
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