President threatens to axe government contracts, Musk fires back and markets recoil
Tesla’s (NASDAQ:TSLA) market value sank by US$152bn on Thursday after an extraordinary public breakdown between President Donald Trump and Elon Musk triggered the sharpest one-day drop in the company’s history. Shares in the electric vehicle maker fell 14.26%, closing below the US$1tn mark at a valuation of US$916bn.
The selloff followed a barrage of barbed exchanges between the two formerly close allies, with Trump threatening to cancel federal contracts and subsidies to Musk’s companies—including Tesla, SpaceX and Starlink—after Musk publicly attacked the administration’s flagship tax bill.
“The easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon’s Governmental Subsidies and Contracts,” Trump wrote on Truth Social, adding: “I was always surprised that Biden didn’t do it!”
Musk responded with defiance on his own social platform, X, declaring: “Go ahead, make my day,” before announcing that SpaceX would “immediately begin decommissioning” its Dragon spacecraft—a key NASA crew transport vehicle.
From Oval Office praise to political fallout
The feud marks a dramatic reversal in what had been one of the defining relationships of Trump’s second term. Musk, who led the Department of Government Efficiency (DOGE) and donated nearly US$300m to Republican campaigns, had been widely credited with helping Trump regain the presidency in 2024.
But tensions escalated this week after Musk denounced the president’s sprawling “One Big Beautiful Bill” as a “disgusting abomination,” citing its impact on deficits and its phase-out of key clean energy incentives.
Trump, speaking alongside German Chancellor Friedrich Merz in the Oval Office, said he was “very disappointed in Elon,” claiming Musk only turned against the bill when it became clear it would cut EV tax credits and eliminate Tesla’s regulatory advantages.
“Elon was wearing thin,” Trump said. “I asked him to leave [the administration]. I took away his EV Mandate… and he just went CRAZY!”
Musk called the statement “an obvious lie” and retorted: “Without me, Trump would have lost the election. Dems would control the House and the Republicans would be 51–49 in the Senate.”
Billions at stake for Musk’s business empire
SpaceX, Musk’s privately held space company, has received more than US$20bn in contracts since 2008 and was awarded over US$3.8bn in FY24 alone. It is also competing for further roles in Trump’s “Golden Dome” missile defence program.
According to analysts at JPMorgan, the proposed tax legislation could slash as much as US$1.2bn from Tesla’s profits by ending US$7,500 EV subsidies earlier than expected, with an additional US$2bn hit from parallel Senate moves to penalise California’s EV mandate. Tesla’s solar and battery units have separately warned that ending clean energy credits could undermine energy independence.
Tesla shares had recently rallied on hopes for its June launch of a driverless “robotaxi” service in Austin. But Thursday’s slump erased those gains, with broader concerns mounting that the administration may now obstruct the regulatory support needed to scale autonomous vehicle programs.
Political and reputational damage
Musk’s sharp rightward shift has already proven divisive among Tesla customers. His tenure at DOGE—marked by deep cuts to foreign aid and government jobs—drew protests, particularly in blue states. Sales have slumped in key markets including Europe, California and China.
Now, with Trump and Musk trading insults and accusations—including unverified claims from Musk about Trump’s ties to Jeffrey Epstein—the fallout is turning personal and toxic.
“Such ingratitude,” Musk posted, later suggesting that the time had come to launch a new centrist political party.
Tesla’s drop weighed heavily on US markets, with the Nasdaq falling 0.8% and analysts warning of long-term risks to Musk’s empire if the administration follows through on its threats.
As Trump put it: “He misses the place. People leave my administration, and then they become hostile. I don’t know what it is. Trump derangement syndrome, I guess.”
