Tesla loses $150b after Trump-Musk subsidy clash

Tesla shares dropped over 14% on June 5, 2025 wiping out US$150 billion in market value after public remarks from President Donald Trump and Elon Musk.

The clash began when Musk claimed influence over Trump’s election, prompting Trump to threaten cutting federal subsidies benefiting Tesla and SpaceX.

Investors grew concerned that these threats could hinder Tesla’s robotaxi launch in Austin and its planned expansion to other cities.

SpaceX may also face risks, as it relies heavily on government contracts, including NASA projects and recent Starlink approvals.

Despite a brief rebound in after-hours trading, Tesla’s loss erased gains from earlier optimism around its robotaxi program.

🔗 Source: Associated Press

🧠 Food for thought

1️⃣ Government subsidies constitute a critical lifeline for Tesla’s business model

Musk’s business empire has received approximately $38 billion in government contracts and subsidies, significantly influencing both his companies’ operations and his personal net worth 1.

Tesla specifically has benefited from $11.4 billion in emission credits and $3.4 billion in tax credits since 2007, representing a substantial portion of its profitability 1.

This government support creates a fundamental vulnerability in Tesla’s business model, as the company’s profit margin stands at just 6.38% despite its massive $917 billion market capitalization 2.

The reality is that without these subsidies, analysts predict Tesla could face billions in losses, potentially undermining its ability to fund future innovations like autonomous driving technology 3.

2️⃣ Tesla’s lofty valuation rests heavily on robotaxi promises amid struggling EV sales

Tesla’s trailing P/E ratio of 162.69 and forward P/E of 135.14 reveal extraordinary investor expectations that far exceed its current financial performance 2.

The company’s robotaxi initiative represents a critical pivot as Tesla seeks new revenue streams beyond its core electric vehicle business, with plans to leverage its existing vehicle fleet for autonomous ridesharing services 4.

This strategy directly competes with companies like Waymo, which has already logged over 20 million real-world autonomous miles and operates fully driverless services in select cities 5.