Tesla fell sharply in Monday's stock market action as investors responded to CEO Elon Musk's decision to wade deeper into politics with his weekend announcement that he is forming the "America Party" to challenge President Donald Trump and the two-party system.
Musk's formation of a new political party comes as Trump approved his signature tax-and-spending bill, known as the "Big Beautiful Bill," which eliminates key tax credits for Tesla. The Tesla CEO has claimed the new law will plunge the U.S. deeper into debt, which in his view is unacceptable.
Musk posted Saturday to his social media platform X that he is forming the "America Party" after polling his followers.
"When it comes to bankrupting our country with waste & graft, we live in a one-party system, not a democracy," Musk wrote. "Today, the America Party is formed to give you back your freedom."
Trump responded Sunday on his own social media site, Truth Social, claiming that Musk has gone "off the rails" and that the Tesla chief has become a "TRAIN WRECK over the past five weeks."
"He even wants to start a Third Political Party, despite the fact they have never succeeded in the United States," Trump wrote.
Tesla stock sank as low as 288.77 intraday, but pared those losses, retreating around 6.8% to 293.94 during Monday's stock market, making a decisive move below the 200-day moving average and the 50-day moving average. Last week, Tesla stock fell 2.6% to 315.35, just below those key levels. TSLA shares could be close to forging a new base, according to MarketSurge analysis.
Analysts Respond To Musk Party, Lost Credits
William Blair analyst Jed Dorsheimer on Monday downgraded Tesla stock to market perform. Dorsheimer said the decision to downgrade TSLA is primarily based on Trump's spending and tax law removing the Biden-era $7,500 EV tax credit and the elimination of the corporate average fuel economy (CAFE) fines. Without CAFE fines, automakers will have no need to buy zero emission credits from Tesla. Tesla would have had an operating loss in Q1 without ZEV credits.
"While the $7,500 tax credit is likely to affect demand, the combination of a demand headwind and over $2 billion in profit from regulatory credits at risk may be too much for investors to bear. Unlike the EV tax credit, we expect the reduction in regulatory credit revenue to result in a direct hit to profitability, prompting yet another across-the-board reset to Street models," the analyst wrote.
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Dorsheimer also noted that Musk's move deeper into U.S. politics is also weighing on Tesla stock.
"Investors are growing tired of the distraction at a point when the business needs Musk's attention the most and only see downside from his dip back into politics. We would prefer this effort to be channeled toward the robotaxi rollout at this critical juncture," Dorsheimer wrote Monday.
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James Fishback, chief executive of investment firm Azoria, wrote in a Saturday letter to the Tesla board that he is postponing the expected public listing of Azoria Tesla Convexity ETF. Fishback said the decision was a "direct response" to Musk's announcement to form a new political party.
Meanwhile, Wedbush Securities analyst Dan Ives, a longtime Tesla bull, noted on Sunday that Musk's political involvement, after recently vowing to step back, is not what Tesla bulls want to hear.
"Very simply Musk diving deeper into politics and now trying to take on the Beltway establishment is exactly the opposite direction that Tesla investors/shareholders want him to take during this crucial period for the Tesla story," Ives wrote in a Sunday note.
"While the core Musk supporters will back Musk at every turn no matter what, there is broader sense of exhaustion from many Tesla investors that Musk keeps heading down the political track," he added.
Tesla Stock Performance
However, it remains to be seen what retail Tesla stock investors will do on Monday and this week. In early June, as Tesla stock sank with Musk and Trump publicly feuding, trading insults and threats on social media, retail Tesla investors poured more than $650 million into Direxion Daily TSLA Bull 2x shares, according to Bloomberg data. The fund delivers twice TSLA's daily return.
Reflecting the retail investor interest in TSLA, Tesla stock was the top tracked by the subreddit investor group r/WallStreetBets. Website ApeWisdom shows TSLA is the top-trending issue on r/WallStreetBets as of Monday.
TSLA rallied from late April to late May in part because Musk said he was backing away from politics and the Trump administration. However, since then, Tesla stock has tumbled and rebounded on the Musk-Trump news cycle.
The July 1 low of 293.21 is a short-term level to watch as is the June 5 low of 273.21.
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Tesla stock at Monday's stock market close was up 23% on robotaxi bets following the April 22 Q1 conference call. Shares are down about 27% for the year, and 40% below their all-time high of 488.54.
Tesla Deliveries And The Stock Market
Last week, the EV giant reported second-quarter vehicle deliveries of 384,122, slightly below analyst consensus but not as low as some feared. The total was down 13.5% compared to a year ago while overall vehicle production ran nearly flat vs. a year earlier, when Tesla produced 410,831 EVs.
Before the deliveries release, Forbes reported that Musk fired Omead Afshar, Tesla's head of operations in North America and Europe. Afshar began at Tesla in 2011 and, during his tenure, reportedly became one of Musk's top lieutenants and most trusted allies.
At the end of last year, as Tesla predicted 20%-30% EV delivery growth in 2025, the Q2 consensus was 502,000. In a May 20 interview at Bloomberg's Qatar Economic Forum in Abu Dhabi, Musk said Tesla was not having any demand issues.
"We've lost some sales perhaps on the left but we've gained them on the right," Musk said, referring to where consumers place along the political spectrum. Musk's involvement with the controversial Department Of Government Efficiency had stirred protests and boycotts among those on the left.
"The sales numbers at this point are strong and we see no problem with demand," he said.
"Our stock wouldn't be trading near all-time highs if things weren't in good shape, they're fine, don't worry about it," Musk added at the time when TSLA shares were 29% below the all-time high of 488.54.
Tesla stock has a 21-day average true range of 5.77%. The ATR metric, available on IBD's MarketSurge charting tool, gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily stock market action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs.
Investors can keep tabs on the IBD Leaderboard watchlist, the IBD 50 list of top growth stocks and IBD SwingTrader along with the IBD Sector Leaders list.
Tesla stock has a 60 Composite Rating out of a best-possible 99. The stock also has a 75 Relative Strength Rating and a 59 EPS Rating.
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