Tesla already had big problems. Then Musk went to battle with Trump

Tesla has been facing massive challenges trying to get back on track after a disastrous first quarter. Those headwinds strengthened considerably this week.

CEO Elon Musk officially concluded his term with the Trump administration at the end of May, hitting the 130-day mark, the maximum time allowed for a “special government employee.” On his way out the door, Musk expressed sharp criticism of Trump’s signature spending bill that’s being debated in Congress due to its expected impact on the national debt.

What started off as a policy disagreement quickly escalated into an all-out online brawl, with Musk and President Donald Trump hurling insults at one another from their respective social media platforms. After Musk called the “one, big beautiful bill” an “abomination” and rallied his followers on X to “kill the bill,” Trump said Musk had gone “CRAZY” and threatened to end government contracts and cut off subsidies for Musk’s companies. Musk responded, “Go ahead, make my day.”

The rift sent Tesla shares plummeting 14% on Thursday, wiping out roughly $152 billion in value, the most for any day in the company’s 15-year history on the public market. While Musk is still the richest person in the world on paper, his net worth plunged by $34 billion, according to Bloomberg’s Billionaires Index.

More importantly, the spat brought about the collapse of a relationship that blended business, politics, and power in a manner virtually unprecedented in U.S. history. The ramifications to Tesla, which fell out of the trillion-dollar club on Thursday, could be severe, and not just because Trump is reportedly considering selling or giving away the red Model S he purchased in March after turning the White House lawn into a Tesla showroom.

A senior White House official told NBC News on Friday that the president was “not interested” in having a call with Musk to resolve their feud.

Ire from the Trump administration could influence everything from future regulation, investigations and government support for Tesla, to decisions on tariff exemptions the company has been seeking in order to purchase Chinese-made manufacturing equipment.

Tesla shares were badly underperforming the broader market before the Musk-Trump breakup. Revenue slid 9% in the first quarter from a year earlier, with auto revenue plummeting 20%, due to increased competition from lower-cost EV makers in China and a consumer backlash to Trump’s political activities and rhetoric.

It’s certainly not what Tesla shareholders expected when they sent the stock up about 30% in the days following Trump’s election victory in November. After spending close to $300 million to return Trump to the White House, Musk was poised to have a significant role in the administration and be in a position to push through regulatory changes in ways that benefited his companies.

Instead, his company has suffered, and Musk’s behavior is primarily to blame.

One of his most divisive actions in leading the Trump administration’s Department of Government Efficiency (DOGE) was the dismantling of USAID, which previously delivered billions of dollars of food and medicine to more than 100 countries.

Beyond the U.S., Musk has endorsed Germany’s far-right extremist party AfD, and gave a gesture that many viewed as a Nazi salute at an inauguration rally.

In response, in recent months, there were numerous cases of vandalism or arson of Tesla facilities or vehicles in the U.S., as well as waves of peaceful protests at Tesla stores and service centers in North America and Europe.

Advertisements in protest of Musk have appeared in New York’s Times Square, and at bus shelters in London, urging people to boycott Tesla, some labeling the company’s EVs as “swasticars.” The Vancouver International Auto Show even removed Tesla from its exhibitors’ list, fearing the company’s presence would cause safety problems.

On top of that are President Trump’s sweeping tariffs, which have led to concerns that costs will increase for parts and materials crucial for EV production. In its first-quarter earnings report in April, Tesla refrained from promising growth this year and said it will “revisit our 2025 guidance in our Q2 update.”

Pension funds that invest in Tesla have said the “crisis” at the company requires a leader to work a minimum of 40 hours per week to focus on solving its problems.

Public officials are echoing that sentiment and calling on Tesla’s board to take action.

New York City Comptroller Brad Lander said on Thursday in a statement to CNBC that the “schoolyard fight” between Trump and Musk highlights how “Tesla’s weak accountability measures and poor governance threaten not only the company’s financial stability and shareholder value, but also the future of homegrown EV production.”

Brooke Lierman, comptroller of Maryland, told CNBC that the company’s board “is not doing its job to ensure that there is a CEO at Tesla who is putting the company’s interests first.”

Since Musk’s name is synonymous with Tesla, the board needs to ensure that Tesla can stand on its own regardless of who’s leading the company, she added.

“Musk’s behavior continues to threaten the future of Tesla,” Lierman said. “As long as Tesla is identified with Elon Musk and he continues to be a polarizing figure, he will continue to damage the brand which is a huge part of Tesla’s value.”

Musk didn’t respond to a request for comment. CNBC also reached out for comments from board chair Robyn Denholm and directors and executives who work in government relations and in the office of the CEO. None of them responded as of the time of publication.

Tesla investors focused on business fundamentals are justified in their skepticism.

The company has failed to roll out innovative and affordable new model EVs, while Chinese competitors like BYD have flooded the market, particularly in Europe.

Analysts at Goldman Sachs on Thursday lowered their price target on Tesla mostly due to the outlook for 2025. Deliveries this quarter are tracking lower for the U.S., the analysts noted, while European sales saw a 50% year-over-year decline in April and another double-digit drop in May. China sales from those two months were down about 20% from a year earlier.

Quality is also a problem. Tesla has announced eight voluntary recalls of the Cybertruck in 15 months due to a range of issues including software bugs and sticking accelerator pedals.

Musk is urging investors to largely ignore the core business and look to the future, which he says is all about autonomous vehicles and humanoid robots.

But even there, Tesla is behind. In AVs, the company has ceded ground to Alphabet’s Waymo, which is operating commercial robotaxi services in several U.S. markets. After a decade of missed deadlines, Musk has promised a small launch of a Tesla driverless ride-hailing service in Austin this month.

The Austin robotaxi service will operate in a geofenced area, Musk said in a recent interview with CNBC’s David Faber, and will begin with a small fleet of just 10 to 20 Model Y vehicles with Full Self-Driving (FSD) Unsupervised technology installed. If all goes well, Musk has said, Tesla will try to rapidly expand its driverless offerings to other markets like San Francisco and Los Angeles.

What consumers won’t be seeing anytime soon are the Cybercab and Robovan vehicles that Tesla touted at its “We, Robot” event last year to drum up customer and investor enthusiasm.

On Friday, Milan Kovac, Tesla’s vice president of Optimus robotics, announced he was leaving after joining the company in 2016. Musk thanked him for his “outstanding contribution” in a post on X.

Still, there are plenty of Tesla bulls and Musk fans who are believers in the CEO’s vision. The stock’s 4% rebound on Friday is a sign that some saw an opportunity to buy the dip.

“I think the real story here is the investor base of Tesla literally doesn’t care about anything,” Josh Brown, CEO of Ritholtz Wealth Management and CNBC PRO contributor, told CNBC’s “Halftime Report” Friday. “This is still a nothing-matters stock.”

FundStrat’s Tom Lee said the Tesla selloff was “overdone.”

Tesla’s market cap, which is dramatically inflated relative to every other U.S. car maker, is built on Musk’s vision of Tesla’s Optimus humanoid robots doing factory work and babysitting our children, while self-driving Cybercabs and Robovans make money carting around passengers.

Morgan Stanley’s Adam Jonas wrote in a note this week that, “Tesla still holds so many valuable cards that are largely apolitical,” pointing to what he sees as the company’s “AI leadership, autonomy/robotics, manufacturing, supply chain re-architecture, renewable power, [and] critical infrastructure.”

In terms of Tesla’s existing business, the most immediate impact from what’s happening in Washington, D.C., is the rollback of EV credits in the current budget bill that Musk loudly opposes and that is struggling to find sufficient support in the Senate. There’s also the matter of the tariffs and whether Tesla can get preferred treatment, which seems increasingly unlikely with the Musk-Trump fallout.

Matthew LaBrot, a former Tesla staff program manager, told CNBC he was not surprised that Musk had blown up his relationship with the president. LaBrot was terminated earlier this year after sending an open letter protesting Musk’s divisive political activity.

“I am devastated for the country and the climate, though Elon only has himself to blame,” LaBrot said in an interview. “Back a loose canon, expect stray canon fire.”

Tesla investors can’t know at the moment how much of Musk’s energy and time will return to his lone public company, and the business responsible for the vast majority of his wealth. Even without politics, he still has SpaceX, AI startup xAI and brain tech startup Neuralink, among other businesses.

As of Thursday, Musk still had a West Wing office that hadn’t been cleaned out, two administration officials told NBC News. One of the officials said the space will likely be packed up in the coming days.

And while his time in the Trump camp may be over, Musk has called on his followers to form a new party in the U.S.

“Is it time to create a new political party in America that actually represents the 80% in the middle?” he wrote on X on Thursday, in a post that’s now pinned at the top of his page. According to the post, 80% of 5.6 million respondents to the unofficial poll said “yes.”

Musk’s actions this week may have caused a permanent rift with the president. But one thing is clear — his company can’t escape the White House.

WATCH: Impact of Musk’s feud with Trump