The company’s decline is being driven by both falling demand for electric vehicles, leadership controversies, and a public row between Elon Musk and former U.S. President Donald Trump.

Tensions reached a breaking point when Musk, Tesla’s CEO, openly criticised Trump’s tax and spending agenda on X, the social media platform he owns. Trump retaliated on Truth Social, warning that federal contracts with Musk’s companies could be cancelled. 

That single threat sent Tesla shares down more than 14% on Thursday alone, the company’s worst one-day loss since 2020. Short sellers raked in an estimated $4 billion in profits from the collapse, according to Ortex data.

Tesla began the year ranked eighth globally by market capitalisation but has now fallen to tenth. The electric carmaker’s valuation has slumped to $917 billion, dragging it further down the leaderboard of global tech giants.

TD Cowen, a research firm, says the political fallout is creating fresh risks for Tesla’s U.S. sales. “35% of Tesla’s U.S. sales occur in Republican-leaning counties, 12% of which it classifies as ‘Deep Red.’ Of the 65% in Democratic areas, 36% are ‘Deep Blue.’” 

With Musk openly feuding with Republican leadership, analysts are concerned that political issues could hurt demand in key markets.

Meanwhile, Goldman Sachs has trimmed its price target for Tesla from $295 to $285, pointing to weakening deliveries across China, Europe, and the United States. The bank now expects Tesla to deliver just 365,000 vehicles in the second quarter, down from 410,000 and has maintained a ‘Neutral’ rating on the stock.

Some investors are still optimistic. TD Cowen kept a ‘Buy’ rating on Tesla, with a price target of $330, but warned that “Thursday’s events have created a higher degree of near-term uncertainty.”

The White House is reportedly attempting to calm the situation, with aides scheduling a call with Musk in a bid to ease political tensions. That news gave Tesla a brief lift on Friday, with shares rising up to 4% in pre-market trading.

Elsewhere in big tech, Apple has slipped from the top spot, falling to third place this year due to soft demand in China and renewed trade tensions. Its valuation has dropped more than 20%, landing at $2.99 trillion. Microsoft now leads the pack, driven by strong enterprise demand and adoption of its AI-powered tools.

Investor trust in Tesla has always been tied to Musk’s leadership, but that leadership has become more politically divisive and the market is reacting with caution and with retreat.

No company-specific announcements were made that day, the market reaction was triggered solely by political drama.

The breakdown between Musk and Trump, once political allies, has now become a source of instability for Tesla, just as the company is trying to overcome slower EV demand and regulatory issues.

In a series of retaliatory exchanges, Musk criticised Trump’s newly proposed budget bill, which threatens to eliminate electric vehicle tax incentives. Trump fired back, accusing Musk of personal bias and threatening to cancel all federal contracts and subsidies benefiting his businesses.

“The easiest way to save money in our Budget, billions and billions of dollars, is to terminate Elon’s governmental subsidies and contracts,” Trump wrote on his Truth Social platform.

This was an indirect message to investors, Musk’s business empire, including Tesla and SpaceX, is under political issues.

As it stands, Tesla faces at least three challenges: potential withdrawal of EV incentives, a drop in regulatory credit revenue, and greater issues with its self-driving technology.

The U.S. Transportation Department has already begun reviewing Tesla’s “Full Self-Driving” software following a fatal crash. The National Highway Traffic Safety Administration (NHTSA) has confirmed it is “actively engaged in developing a multi-faceted regulatory framework” for autonomous vehicles, which could impact Tesla’s driverless vision.

Tesla’s robotaxi programme, Musk’s central pitch to investors, may be directly impacted. The company insists it can operate fully autonomous vehicles using only cameras, without radar or lidar sensors.

But that approach is controversial. Some analysts believe federal regulators could introduce rules mandating additional sensor technology. If that happens, Tesla would be forced to overhaul its self-driving systems.

“Federal regulators might devise rules requiring lidar, which would hurt Tesla,” said Morningstar analyst Seth Goldstein. “With President Trump, being on his bad side always creates risk that you’re going to get personal retaliation.”

I’ve seen Tesla bounce back from market shocks before, but this feels different. The political environment has changed, and Tesla now finds itself caught in the crossfire.

Dennis Dick, a shareholder and strategist at Stock Trader Network, told Reuters: “Elon’s politics continue to harm the stock. First, he aligned himself with Trump, which upset many potential Democratic buyers. Now he has turned on the Trump administration.”

Trump’s budget bill also proposes cutting the $7,500 federal EV subsidy by the end of 2025. Tesla, along with other automakers, has relied heavily on such incentives to drive adoption.

Analysts at J.P. Morgan estimate that if the bill passes, Tesla could lose up to $1.2 billion annually from reduced vehicle sales, along with an additional $2 billion hit from declining regulatory credit sales.

Even more concerning for investors is how this feud affects Tesla’s standing in Washington. Transportation Secretary Sean Duffy has pushed for regulatory reform around autonomous driving, and up until recently, Musk’s companies were seen as central to federal innovation plans. But Musk’s public attacks on Trump’s “big beautiful bill” may have jeopardised that influence.

Ross Gerber, CEO of Tesla investor Gerber Kawasaki, said, “Every benefit that was perceived he would have got now turns into a negative.”

Musk’s personal wealth also took a hit, down $27 billion in a single day, now reportedly sitting at $388 billion according to Forbes. Tesla’s valuation, while still leading globally at $1 trillion, may no longer feel as untouchable. Toyota, its closest rival, stands at a more modest $290 billion.

The political issue Musk took by endorsing Trump in 2024, initially rewarded with a stock surge of 169%, has now reversed. Since December, shares have tumbled 54%, dragged by protests, falling sales in Europe and China, and cooling sentiment in major U.S. markets like California.

There’s still long-term value in Tesla’s core technology. But for now, the market is wondering if Tesla can survive politically weaponised disruption.

“I am short Tesla. I don’t understand it. I don’t understand its valuation. I don’t understand its fundamentals. I think it’s overhyped,” said Bob Doll, chief investment officer at Crossmark Global Investments.