The Trump-Musk Fallout: 2 Big Implications on Tesla

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The Trump-Musk Fallout: 2 Big Implications on Tesla

The amusing fallout between Donald Trump and Elon Musk has certainly taken the world by storm. In just one day, Tesla (NASDAQ:) had lost over $150 billion in market capitalisation, with its share price plummeting by over 14%. In this article, I explain two fundamental implications of Tesla as a result of this ongoing feud.

A Tricky Regulatory Landscape

The U.S. Department of Transportation (USDOT), particularly through the National Highway Traffic Safety Administration (NHTSA), plays a pivotal role in regulating vehicle design standards — including requirements for steering wheels, pedals, seat belts, and other safety features. As such, it remains a key gatekeeper in determining whether Tesla can mass-produce its envisioned robotaxis, which are designed to operate without traditional controls.

While NHTSA is technically independent, its regulatory priorities can be influenced by the administration in power, and President Trump — through executive orders and leadership appointments — holds the ability to shape its policy direction. In light of his escalating feud with Elon Musk, this influence may now translate into new bureaucratic headwinds for Tesla’s expansion.

Tesla has already petitioned NHTSA for exemptions to produce these fully autonomous vehicles, but mounting regulatory hurdles could delay or even limit their eventual deployment. Given the billions Tesla has invested in its Full Self-Driving (FSD) software, the robotaxi project represents a cornerstone of its long-term strategy — and any significant delay would directly impact the company’s ability to recoup its R&D investments and maintain strategic positioning in the autonomy race.

Compounding this challenge is Tesla’s growing legal exposure — the company is already facing lawsuits over its marketing of FSD and alleged safety lapses. A hostile federal climate, fueled by the Trump-Musk conflict, may embolden regulators and lawmakers to take a more aggressive stance, hence increasing the likelihood of investigations, enforcement actions, or adverse rulings. In this environment, Tesla faces not only regulatory resistance but also a heightened risk of legal liabilities that could further constrain its ambitious roadmap. 

Potential Termination of Federal Support

President Trump’s suggestion to terminate Elon Musk’s access to federal subsidies, contracts, and other forms of government support has heightened concerns about Tesla’s financial stability. While framed as a move to reduce the national deficit, the implications for Musk’s businesses — particularly Tesla — cannot be understated.

Reports estimate that Musk-affiliated ventures have received at least $38 billion in government support through contracts, loans, subsidies, and tax credits, and Tesla’s share of that support is far from negligible. Since 2007, the company has earned approximately $11.4 billion from selling emission credits and another $3.4 billion in tax incentives, both of which have materially bolstered its bottom line over the years.

With this backdrop, the potential loss of federal backing poses a real threat — especially as Tesla’s core financial metrics are already under pressure. In Q1 2025, the company reported a 71% year-over-year decline in net income, signaling broader challenges in demand, competition, and profitability. Stripping away government support in this environment wouldn’t just be symbolic — it could significantly weaken Tesla’s financial resilience at a time when it’s most vulnerable.

But don’t rush to sell just yet…

While the headlines surrounding the Trump-Musk fallout may seem alarming, it’s important to remember that many of these risks — from regulatory roadblocks to the potential loss of federal support — have not yet materialized. That said, they still represent plausible headwinds that investors should keep on their radar. Dismissing the feud as mere “noise”, which many tend to do, overlooks the real potential for political tensions to translate into strategic and financial consequences for Tesla.

On the other hand, we should also acknowledge that Tesla is no stranger to adversity. The company has repeatedly demonstrated its ability to innovate, adapt, and emerge stronger from periods of uncertainty. Its track record of overcoming setbacks — regulatory, financial, and competitive — speaks to a deep culture of tenacity and resilience. As such, while it’s wise to remain cautious and clear-eyed about the risks ahead, it’s equally important not to underestimate Tesla’s capacity to navigate turbulent waters.

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