BREAKINGVIEWS-Elon Musk turns Tesla’s political risk dial to 11

By Jonathan Guilford

NEW YORK, July 7 (Reuters Breakingviews) - When something isn’t working, Elon Musk’s instinct is to push even harder. The Tesla TSLA.O boss has taken plenty of risks against lengthening odds over the years, from betting the electric carmaker on the “development hell” of building its most-successful models through to wagering the $910 billion company’s future by backing Donald Trump’s presidential campaign last year. Each time, the danger was in service of tantalizing reward. By announcing plans to form a new political party, Musk is cranking the political risk dial to 11 for a smaller financial payoff.

Musk’s political gamble on Trump initially appeared to hit the jackpot. Tesla shares skyrocketed after the November presidential election as investors bet the world’s richest man would benefit from having the president’s ear when pushing initiatives like self-driving cars. But his swingeing cost cuts with the Department of Government Efficiency sparked a consumer backlash which tanked Tesla sales in key markets. As Musk’s relationship with key White House figures frayed, he departed the government in late May.

Tesla investors had hoped that Musk’s return to the wheel would revive the company's fortunes. Yet while shareholders seem happy to give it credit for future innovations like robotaxis and robots, its business today is crumbling. Analysts’ expectations for this year's earnings have tumbled by nearly half since January. The mixture of future hope and a dismal present is why – after a 6.5% drop in early trading on Monday - Tesla stock still trades at an eye-watering 126 times expected earnings, according to LSEG.

Even compared with robots and spaceships, challenging the U.S. political duopoly with a new group called the America Party might be Musk’s boldest leap of faith to date. Third-party candidates have a long record of failure in the U.S. Independents like democratic socialist Bernie Sanders inevitably end up working within the two-party structure, while previous high-water marks for outside candidates in the 1960s and the 1990s did not come close to cracking the system.

Musk may conclude that spending some of his vast fortune to influence races in next year’s mid-term elections will buy some political clout. Tesla’s robotic taxi pilot program is under close watch from regulators. The company’s uniquely advantageous treatment in China may also be in doubt as Musk’s influence in Washington wanes, as the Wall Street Journal reported. His SpaceX unit depends heavily on federal contracts.

But Musk’s latest diversion into politics yanks his attention away again. He had won the political game once by backing Trump, just as he won massive leads in electric vehicles or bringing early self-driving features to market. Each time, he squandered these advantages. Tesla investors have little choice but to watch him try to regain his edge, through ever-more-arduous and less obviously lucrative means.

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CONTEXT NEWS

Elon Musk said in a post on social media network X on July 5 that he would form a new political party, the America Party. The CEO of electric-car maker Tesla and other ventures said that his new party would concentrate resources on contesting key elections.

President Donald Trump deemed Musk’s plans “ridiculous” on July 6. Musk supported Trump’s campaign in the 2024 U.S. presidential election, and took a role in the administration leading the Department of Government Efficiency. He departed that position in May, and shortly after began criticizing Trump's signature tax-and-spending legislation.

Tesla shares were down 6.5% at $295 as of 1430 GMT on July 7.