Renewed doubts about Elon Musk’s focus on running Tesla hit the stock on Monday, after he announced plans to launch a new political party to upset the current two-party system in the United States.

Musk said he would launch the America Party to focus “on just 2 or 3 Senate seats and 8 to 10 House districts.” 

It follows a public fallout with President Trump over the latter’s tax bill, which will significantly increase the deficit. Musk  hopes his new party will win a handful of seats to swing key votes such as the tax and spend bill that just cleared the House.

A few points to make on this

Whilst Musk didn’t say anything about taking time off from Tesla, investors read the switch to politics again as a sign he would be more distracted.

Investors have been concerned about Musk’s involvement in politics since he got close to Trump and then led the Department of Government Efficiency (DOGE).

His proximity to Trump and support for right-wing parties in Europe seemed to hurt the brand – sales were plunging and the stock fell 40% from the start of the year through to the middle of March. The board put pressure on Musk to take a step back.

Investors were also concerned that his focus on politics was a distraction from running Tesla as it faces big challenges to roll out its Robotaxi fleet and deal with falling sales in Europe and tough competition in China. Deliveries in the second quarter were down 14% year-on-year. A Robotaxi launch in Austin, Texas underwhelmed.

In April, Musk said he would "significantly" cut back his role in the US government after Tesla reported a huge drop in profit and sales for the start of this year. The stock rallied.

In May, as he finally left DOGE he committed to lead Tesla for five years – the stock rallied some more. Investors wanted to see a fully engaged Musk at the helm as he is by far the company’s biggest asset. Tesla faces plenty of challenges, but investors appear to think Musk is the best person to lead the company.

Back in May, we noted that Musk’s commitment was a question mark overhanging the stock. Watch carefully if Musk genuinely steps back from politics, we said. His renewed attention could turbocharge Tesla’s recovery—but only if he remains fully engaged.

A push back into the political arena is not what most Tesla shareholders want. The board may get involved to ensure Musk remains fully committed to Tesla. Monday’s 7% slide means the stock is down over 20% YTD.

Can a push into politics be different this time?

• Likely will extend spat with Trump and threaten contracts/subsidies

• Could distract Musk from running Tesla at a key moment for the company

• Unlikely that going against Trump will win back admirers lost during his time backing the president

• Remember, Musk’s proximity to Trump was seen as a tailwind for Robotaxis and FSD – investors may expect fresh headwinds now.

And changes to emissions credits need to be assessed - the political personality-led fracas masks arguably a much deeper policy problem for Tesla.

The “big, beautiful tax bill” just signed into law by Trump ends about $2bn in EV tax credits for Tesla. The bill ends penalties under the corporate average fuel economy (Cafe) standards for more polluting automakers, who buy billions of dollars of emissions credits from Tesla. Under the bill, Cafe fines are set at zero, negating the need for other automakers to purchase credits from Tesla, which relies heavily on the income stream.

In the first quarter, Tesla revenues from emissions credits rose 35 per cent to $595 million, surpassing the company’s overall $409 million of net income. Last year, Tesla generated $2.8 billion in revenue from selling regulatory credits worldwide, up from $1.8bn in 2023. In total this amounted to 39 per cent of its $7.1 billion annual net income.

Ending emissions credits may not have an immediate impact on Tesla’s bottom line since it has struck multi-year agreements with other automakers, and these could take years to wind down. Moreover, Tesla can still make money from selling credits overseas – recently striking a pooling arrangement with other automakers in the EU. But around three-quarters of emissions credits revenues are currently generated in the US, it’s thought.