Tesla in turmoil: Elon Musk’s political gambit backfires amid trade war tensions

Tesla, once the golden child of the electric vehicle industry, is now grappling with a crisis that threatens its financial health, public image, and leadership stability. The company’s mounting troubles are amplified by its CEO Elon Musk’s entanglement in President Donald Trump’s administration, which has turned into a double-edged sword for the iconic automaker.

Tesla finds itself caught in the crossfire of Trump’s aggressive tariff strategy. The administration’s 25% tariff on all imported vehicles, part of a broader trade war, is already straining automakers across the board. However, Tesla’s challenges are compounded by Musk’s unusually close relationship with the president.

While Tesla doesn’t rely heavily on imported vehicles — it manufactures in the United States and does not ship in cars from its overseas factories — it still faces significant costs due to the new tariffs. On social media platform X, Musk acknowledged that the impact is “not trivial,” despite Tesla being relatively insulated compared to traditional automakers.

Worse, Tesla has halted new orders in China for its premium Model S and Model X vehicles, which are built in California. China, retaliating with a 125% tariff, has made those models financially unviable in its market. Although these high-end cars form a small part of Tesla’s overall portfolio, China remains crucial, contributing over 20% of Tesla’s revenue last year.

Musk’s influence in Washington, particularly through his role in the Department of Government Efficiency (DOGE), once seemed like a strategic advantage. His status as Trump’s top financial backer and close advisor initially boosted Tesla’s stock. But now, that alliance is backfiring.

Critics argue Musk’s political visibility is alienating customers and investors. Dan Ives, a longtime Tesla bull and analyst at Wedbush Securities, described the current moment as a “code red situation.” In a note to clients, he emphasized that Musk “needs to leave the government, take a major step back on DOGE, and get back to being CEO of Tesla full-time.”

Tesla’s brand, once synonymous with innovation and progress, is facing backlash in the form of protests, vandalism, and declining consumer sentiment. Investor forums are overflowing with questions about how the company plans to navigate the fallout from Musk’s political involvement.

The first quarter of 2025 marked a historic decline for Tesla: its steepest drop in sales following years of steady double-digit growth. Investors are demanding answers not just about finances, but about stalled innovations. Promises of a self-driving Robotaxi fleet, affordable new EV models, and even humanoid robots remain unfulfilled. In Austin, Texas, Musk had promised a driverless ride-hailing service would launch this summer, yet there’s been no official update.

Meanwhile, competitors like Uber and Google’s Waymo have surged ahead, launching their own autonomous ride-share programs in the same market. Musk’s silence on these delays is eroding confidence.

On April 2, when Tesla reported its worst year-over-year sales performance ever, its shares plummeted. The bleeding temporarily stopped only when Politico reported Musk was preparing to resign from his government role. The market responded positively—until the report was denied.

Analysts are now openly questioning whether Musk’s presence in the White House is worth the toll it's taking on Tesla. JPMorgan Chase analyst Ryan Brinkman noted that Tesla may have underestimated “the degree of consumer reaction” to Musk’s government entanglements.

At this critical juncture, Tesla’s board is under pressure. Investor sentiment is clear: they want Musk to focus entirely on steering the company through this storm, not on influencing public policy.

With earnings due to be reported this week and an investor Q&A on the horizon, Musk faces a pivotal test. Will he reassure stakeholders with concrete progress on promised innovations? Will he distance himself from Washington to rebuild Tesla’s battered image? Or will he double down on his political gamble?

One thing is certain — the choices Musk makes in the coming days could determine Tesla’s future for years to come. Investors, customers, and competitors alike are watching. And so far, the signals are mixed at best.