The recent fallout between former President Donald Trump and Tesla CEO Elon Musk has led to significant volatility in Tesla's stock performance.

Initially, many anticipated that the collaboration between Trump and Musk would be brief ahead of the 2024 elections, but the split occurred sooner than expected, taking many by surprise.

Following Musk's announcement in late April that he would withdraw from government duties to focus on his businesses, Tesla's stock rose nearly 45%.

However, this upward trend reversed sharply after the clash between the two media figures, with Tesla's shares plunging by 14% on Thursday, making only a slight recovery on Friday.

This decline has effectively stabilized Tesla's stock price, which has not significantly changed since 2022.

Analysts have expressed concerns about declining sales prospects for Tesla, predicting a drop by 2025. Despite expectations of some reduction, the descent may be less severe than the broader issues confronting the automotive sector, where sales have been declining sharply in both the United States and internationally.

Musk's personal brand reputation has been reported to deter potential buyers, causing Tesla to face increasing competition from lower-priced electric vehicle manufacturers, particularly from China.

Over the past three years, sales forecasts for Tesla have been consistently downgraded, with projections now suggesting a more significant decrease by the end of this year and into 2026.

Moreover, Tesla's profit margins have been under pressure, attributed to falling sales volumes, with further contraction anticipated.

Compounding these challenges, the company's higher-margin battery division has faced setbacks due to tariffs, while its autonomous taxi fleet lags behind competitors such as Waymo.

Market analysts are speculating on the reasons behind last Thursday's stock drop and how the market is interpreting these developments.

Three primary theories have emerged:


Legislative Impact: Some analysts believe that the market's reaction is influenced by the implications of Trump's proposed legislation.

A pessimistic projection from analysts suggests that the bill could halve Tesla's operating profits, estimating a $1.2 billion decline from the termination of tax incentives for electric vehicle purchases and an additional $2 billion loss from the expiration of carbon tax benefits.

These legislative proposals have been on the table for weeks without causing significant stock movement, but with the deteriorating relationship between Trump and Musk, convincing Republicans to amend the bill now seems unlikely.

Tesla’s Broader Portfolio: Another theory posits that the value of Tesla's shares may extend beyond just automotive sales.

Prior to the current turmoil, Musk’s businesses — excluding Tesla — appeared to benefit from his involvement in federal governance.

Companies like X have reported robust sales, while SpaceX and Starlink have received various advantages.

Investors may have anticipated similar benefits for Tesla, which now appears less feasible.

Partisan Dynamics: An analysis of Tesla's sales patterns in the U.S. against political affiliations indicates shifts during the Trump-Musk partnership.

Sales in Republican-leaning areas have increased, constituting a larger share of total sales, while those in Democratic-leaning regions have decreased.

If Republican areas mirrored the electric vehicle adoption rates found in red counties in Texas — where sales surged in the first quarter — a 39% increase in electric vehicle sales could be projected for the current year, although an antagonistic stance from Musk towards Trump might dampen Republican enthusiasm for electric vehicles, particularly Tesla's.


Market estimates regarding Tesla’s future remain divided, with many analysts leaning towards pessimism.

However, some maintain a more optimistic outlook, suggesting that the impact of legislative proposals may not be as severe as predicted.

The broader context encompasses the U.S. position as a major financial hub, with increasing interest from foreign companies in pursuing initial public offerings (IPOs) in the U.S., as evidenced by recent plans from major firms like the Brazilian meat company JBS and the British fintech Wise.

Notably, in 2021, foreign companies represented 36% of IPOs in the U.S., although this figure was significantly influenced by the large Arm Holdings deal.

In contrast, foreign companies accounted for over 40% of all U.S. IPOs in 2023 when measured by the number of offerings, despite making up only 12% of total deal value.

American companies continue to enjoy favorable conditions, avoiding stringent regulatory scrutiny while benefiting from accessible private financing.

Despite recent challenges, the allure of U.S. markets remains strong, particularly for global firms seeking to raise capital through public listings in an environment that offers greater liquidity and a wider investor base.