How Big a Risk is Musk's New Political Party for Tesla Stock?

The world’s richest man and Tesla TSLA CEO, Elon Musk, just launched a new political party. This has reignited investors’ concern over his growing distractions and controversial public profile. The stock plunged nearly 7% yesterday after Musk announced the creation of the America Party, diving back into politics just days after a public fallout with Donald Trump over the president’s sweeping budget bill.

With Tesla already struggling with delivery declines, investors are now watching their CEO chase votes instead of market share. And that’s a problem.

But Musk’s move wasn’t just out of the blue. He had warned he might start a party if Trump’s massive spending bill passed. It did—and Musk followed through. “Today, the America Party is formed to give you back your freedom,” he posted on X. He added that the party would focus on flipping just a few House and Senate seats, but the message was loud and clear— Musk is back in politics.

The move comes just months after Musk stepped away from his Trump-backed role as head of the Department of Government Efficiency (DOGE). That short-lived exit from politics had been welcomed by Tesla shareholders, who hoped Musk would return to focusing on the company during a pivotal time. Instead, Musk’s re-entry into politics (that too, in a much bigger way) has left investors uneasy.

Timing Couldn’t Be Worse for Tesla

The political move comes as Tesla’s business faces real headwinds. Last week, the EV maker reported a second consecutive drop in quarterly deliveries, with Q2 sales missing Wall Street expectations.

It should be noted that Tesla’s struggle isn’t reflective of the broader EV market — other players are growing just fine. For instance,General Motors GM delivered 46,280 EVs in Q2, more than double its sales from the year-ago period. China’s BYD Co Ltd BYDDY reported 606,993 BEVs sold (up 42.5% year over year), marking its third straight quarter of beating Tesla in battery EV sales.

Notably, 2025 is now shaping up to be another down year for Tesla deliveries—a far cry from the 20-30% growth that Musk predicted last year.

Tesla stock is already down more than 35% from its December highs, making it the worst performer among the “Magnificent Seven” tech giants this year. And with margins under pressure, competition heating up and demand softening, the last thing investors wanted was more distraction at the top.

Musk is already juggling several prominent companies, including Tesla, SpaceX, X, xAI and Neuralink. Now add a political side project.

While Musk’s loyal fan base might applaud his every move, a growing number of Tesla shareholders are losing patience. His latest political pivot is seen as yet another detour from Tesla’s core mission at a time when focus is needed most.

Bottom Line: This Could Get Messy

Musk is the face of Tesla. But when he’s getting dragged into political fights and being called “off the rails” by Trump, it’s no longer just a sideshow. Investors have started to worry. They didn’t sign up for a political crusade.

If Musk continues down this political path, Tesla risks further reputational fallout and stock underperformance. At a time when competitors are doubling down on innovation and execution, Tesla’s CEO is fighting on a different battlefield altogether.

Unless Musk re-centers his focus and gets back to fixing Tesla’s real problems—falling deliveries, margin pressure, and rising competition—his political play could become a real overhang for the stock.

The Zacks Rundown on Tesla

Over the past six months, Shares of Tesla have lost around 25% year to date compared with the industry’s decline of 18%. Meanwhile, General Motors and BYD are up 1.6% and 41%, respectively.  

From a valuation standpoint, TSLA trades at a forward price-to-sales ratio of 9.15, way above the industry. It carries a Value Score of F. Meanwhile, General Motors trades at a forward sales multiple of 0.29 and BYD at 0.91.

See how the Zacks Consensus Estimate for TSLA’s earnings has been revised over the past 60 days.

Tesla stock currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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