The stock reaction was immediate. As soon as there was a clear victory for the Democrats in the House of Representatives and the Senate, the price losses of Tesla and SpaceX accelerated. Early on Wednesday morning, the shares were each down almost five percent after trading.
No wonder: Elon Musk, who heads both companies, was by far the Republicans' largest campaign donor in the midterm elections. The defeat of Donald Trump's party also makes Musk a big loser.
No other CEO is as closely linked to Trump and the MAGA Republicans as the richest man in the world. Last year, Musk was in the White House as “Doge boss” and was supposed to increase the efficiency of the administration. He is now one of the leaders of a new Ministry of Defense initiative. Musk had already sought proximity to Trump with massive donations during the 2024 presidential election - and benefited significantly from it at the time.
Back then, shortly before Trump moved back into the White House, Tesla shares gained a good 90 percent in value in just a few weeks. However, the securities gave up some of their profits when the close relationship between Trump and Musk broke down.
Musk's merger plans could be stalled
The clear victory of the Democrats can now damage Musk and his billion-dollar companies in several ways. Firstly, they could slow down Musk's planned merger between Tesla and SpaceX, warned Vikram Rai, portfolio manager at US investor First New York. This can be done, for example, through hearings, subpoenas and reviews of federal contracts.
SpaceX ultimately receives billions in contracts from the NASA space agency and the US Department of Defense. Bringing the two companies together is a key goal for Musk. And time is running out.
According to a report by the financial news agency Bloomberg, he wants to announce the merger of Tesla and SpaceX in the first half of next year. Accordingly, the megadeal should be able to be concluded as long as Trump is in office. Trump's time in the White House officially ends in early 2029.
Secondly, a slowdown in the data center boom could hit SpaceX as hard as many other tech and neocloud companies that rent out computing power with graphics processors for AI applications. The rapid expansion of data centers is unpopular with voters, but it is the main driver for the US economy, as Larry Fink, head of the world's largest asset manager Blackrock, said in an interview with Handelsblatt in October. If the further expansion of new data centers across the US is stopped, this could even trigger a recession, warned Fink.
New political situation in Texas
Thirdly, the new political conditions in the state of Texas are particularly bitter for the company location of the Tesla boss, who was the first person ever to have a fortune of over a trillion dollars. Texas has become a center of deep red conservatism in recent years.
The Republicans consolidated their power and pushed through laws on key issues of the party, such as border security and public schooling. Texas also attracts with low taxes and little regulation.
Musk therefore moved the Tesla headquarters from California to Texas in 2021 and, according to media reports, is said to have saved billions in taxes. Musk also moved the headquarters of his space company to Texas in 2024.
The fact that the state now has a Democratic senator and is governed by a Democratic governor for the first time in decades is considered a turning point - even if the concrete consequences cannot yet be foreseen. Around 30 percent of the new data center capacity is expected to be built in Texas.
The future governor, Gina Hinojosa, has made a significantly stricter approach to permits and regulations one of her central campaign promises. Tech companies therefore have to prepare for higher costs and longer procedures.
Despite all the risks, investors should not forget one important principle: politics can be an important factor that will influence stock prices in the coming months. But it's not the only one.
Strong quarterly numbers at SpaceX and Tesla could trump the Democrat blues. Musk himself apparently doesn't have to worry about political retaliation. Trump has promised to pardon him as a precautionary measure in order to avert possible punishment.
