For Tesla investors, Elon Musk’s involvement with Donald Trump has been a car wreck that’s unfolded in two chapters: one in slow motion, the next on dizzying fast-forward. During Musk’s 130 days running DOGE, a crusade whose dogged aggression virtually defined the administration’s mindset in the early months, the EV chief infuriated European customers by backing far-right politicians. And as Tesla sales dropped in the likes of Germany and France, and severe competition shrank its market share in China, Musk neglected tackling Tesla’s mounting problems and doubled down, famously battling to slash departments and headcount from the White House. In his absence, Tesla’s stock and earnings tanked.
Bad as that episode proved for Tesla, it at least provided a potential upside. “Even before DOGE, Musk clearly had too many spoons in too many pots through SpaceX, Neuralink, X, and his other ventures; then he got even more preoccupied by putting another spoon in another pot,” says Eric Talley, a professor of law and business at Columbia University. “But being in the White House also included a bit of an insurance policy for Tesla … Sitting close to the seat of decision-making was a big potential advantage.”
Now, says Talley, Musk has single-handedly turned that “insurance policy” into a liability—the threat that the administration will penalize the EV-maker, or at best do nothing to protect it. When Musk departed DOGE on May 30 amid the fanfare of Trump’s Oval Office send-off, Tesla shareholders still had little to toast, since the CEO wasn’t off-loading his empire’s myriad duties to refocus on the troubled manufacturer. Then the Musk-Trump feud, which exploded on June 5, triggered by the former’s lacerating takedown of the president’s signature budget bill, put Tesla overnight into a spot where it’s threatened not only by poor finances but the insults unleashed at his former sponsor, which both invite retaliation by Trump and endanger Musk’s survival as the enterprise’s leader that’s so critical to its gigantic valuation.
“The thing that’s different in the last 24 hours,” says Talley, “is that Musk not only walked away from an insurance policy of having a CEO situated high in government. He took out an anti–insurance policy. Any moment could erupt in a flameout from either side over social media that puts a target on Tesla’s back.” He notes that Tesla’s rivals are confronting the same headwinds from the wind-down in EV subsidies to purchasers proposed in the so-called Great Big Beautiful Bill, but the overhang from antagonizing the president “is a target its competitors don’t have.”
Indeed, the day it detonated, the blowup sent Tesla shares reeling 14.3% in a free fall that erased $153 billion in market cap, the biggest one-day drop in the company’s history. Though it clawed back around a third of those losses the following day, the stock’s still sitting 40% below its recent summit in mid-December.
Musk’s outrageous behavior would normally get him booted as CEO
Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware, and one of the leading experts on the rules and ethics governing boards, told Fortune that at any other major public company but Tesla, Musk would be gone—and the dumping would have happened well before the new hurricane. “If his name had been Joe Doakes, he’d be gone in a nanosecond,” says Elson, “given the reputational damage he did alienating a good number of customers by going into politics at DOGE. It’s a mess. No other board would have let a CEO get involved in that way. You don’t have time to be a CEO!”
What keeps Musk in the job is his iron grip on the board, says Elson. He notes that Musk controls 30% of the shares, and that his influence extends beyond the power of that stake owing to the loyalty built, in part, by awarding directors large options grants that made many of them extremely rich. Elson reckons that it would be extremely difficult for disgruntled shareholders to prevail in lawsuits versus board members that might work toward forcing out Musk. “The road to winning liability cases against directors is a twisting, bumpy one,” he avows. “That Tesla reincorporated from Delaware to Texas makes it much tougher. That’s why Tesla moved to Texas. It was a race to the bottom, and they ran all the way to the bottom of the barrel.” According to Elson, Musk can’t be forced to leave, and won’t go unless he wants to, “and there’s nothing anybody can do about it.”
Nevertheless, the size of Musk’s ownership stake that’s the source of his control, and his attachment to Tesla going forward that’s dependent upon that position, are being tested by a landmark decision in the Delaware courts. The ruling, handed down last year, negated the $56 billion stock package awarded by the board in 2018 that accounts for two-thirds of Musk’s holdings. Tesla is now appealing to get that compensation restored. If the Delaware Supreme Court upholds the decision, Tesla is certain to attempt getting that compensation reinstated. But that route courts much higher risks now.
According to Talley, the board under Texas law could either attempt to restore the package unilaterally, or put the issue to a shareholder vote. He reckons that the former, more direct approach is now looking a lot less attractive to the directors than a few days ago. “The board may prefer now to go with a shareholder vote,” he says, given the potential backlash from rewarding Musk so royally when Tesla’s struggling, mainly because of his own actions. “It might appeal to the board to go that way and count on a rejection,” he adds. A turndown raises another potentially ghoulish outcome. “If they have a shareholder vote, and it goes negative, then you have a succession problem. You don’t want a CEO to take vengeance on the company,” a path the mercurial legend could take. It’s also unclear how Musk will react if the Delaware Supreme Court rules against him—same upshot: He owns far less of Tesla, and his incentive to rebuild the greatest source of his wealth would be greatly diminished.
Despite the selloff, Tesla’s still sporting a giant premium because of Elon Musk
Tesla enjoys a gigantic premium courtesy of Musk’s iconic status and the serial promises of delivering self-driving technology that will transform Tesla from a metal-bender into a fabulously lucrative tech player. As I detailed after Tesla reported Q1 results, it actually lost money selling cars and batteries and only managed a tiny profit through the sales of regulatory credits. Its “hardcore,” repeatable earnings from the auto and battery franchises over the previous four quarters totaled just $3.5 billion, down from $12 billion in 2022. At a P/E of 30—that’s three times the auto industry average—Tesla, based on bedrock fundamentals, might be worth $100 billion. But even after the recent selloff, its valuation stands at $960 billion. Hence, the difference of well over $800 billion arises from what I’ll call the “Musk magic premium,” created by his promises of epic innovations to come.
If Musk were to depart, a big part of that magic premium exits with him. It may be fading already. So for Tesla shareholders, it’s bad either way. Musk leaves and a hands-on leader arrives, but the genius’s halo no longer shields the stock; or he stays and keeps starting fights that undermine the brand and spreads his time among half a dozen pioneering ventures that he may find more riveting. As Elson puts it, “Anyone else would be fired after this, but he feels he can’t be. He has this aura that makes him feel untouchable. He’s got a cult status that seems to follow him and make folks think it’s okay that he doesn’t operate in a normal way.” But, Elson cautions, as Musk’s behavior gets more and more outrageous, the burden he’s heaping on Tesla, now and what investors increasingly perceive is looming, is catching up with him. We’ve just seen a shocking example of how fast that can happen, and how rapidly the myth can dissolve.
