Elon Musk's deep dive into politics was bad for business. His breakup with Trump could hurt even worse
By
Matt Egan
, CNN
Elon Musk.
Photo:
AFP
Analysis
-
Elon Musk's decision to go all in on Donald Trump never made much sense. His scorched-earth approach to breaking up with Trump is even harder to square.
As a close Trump ally, Musk's actions inevitably affected Tesla - the biggest piece of his business empire and the maker of one of the most visible and expensive items that Americans can purchase: electric vehicles.
First, Musk turned off Tesla's core customers, Democrats on the coasts, by pouring money and using his influence to help Trump return to the White House. Then he took a chainsaw to the federal workforce.
Trump confirmed
their relationship has soured
, with Musk repeatedly blasting the president's sweeping domestic agenda bill in recent days and a public fight on social media on Thursday (US time). Now, Musk's war of words with the president risk turning off the same Trump voters who may have considered buying a Tesla until this week.
Not only that, but Tesla's ambitions for self-driving vehicles require government approval, something that no longer looks like a sure thing amid the Musk-Trump feud. Other Musk businesses like SpaceX are built on government contracts - contracts that Trump wasted no time threatening on Thursday.
The past 12 months - with Musk marrying himself to the polarising Trump brand and then breaking up with him - look like a textbook example of what a CEO should not do, especially a consumer-facing CEO.
"It's a bit of a head-scratcher that Musk is going so rogue-negative towards Trump so quickly. It's a potentially very hazardous path," Dan Ives, a senior equity research analyst at Wedbush Securities and a longtime Tesla bull, told CNN in a phone interview on Thursday.
The Musk-Trump break-up, playing out on the billionaires' respective social media platforms, was both entirely predictable and shocking nonetheless.
After Musk blasted Trump's policy bill as a "disgusting abomination" earlier this week, Trump suggested Musk has "Trump derangement syndrome." Musk responded by undercutting Trump's political prowess, saying: "Without me, Trump would have lost the election."
As two of the world's most powerful people continued to trade public barbs, Tesla shares dropped lower and lower.
Tesla shares (TSLA) [https://www.rnz.co.nz/news/world/563313/trump-musk-row-slams-tesla-shares-us-150-billion-in-market-value-wiped-out plummeted 14 percent as the bromance between Trump and Musk imploded in front of the entire world. The selloff erased about US$152 billion (NZ$252 billion) from Tesla's market value and US$34 billion (NZ$56.4 billion) off Musk's net worth, according to the Bloomberg Billionaires Index.
Tesla shares rebounded on Friday morning but only modestly.
Trump told CNN's Dana Bash on Friday that he's "not even thinking about Elon" and won't be speaking to him in the near future.
"He's got a problem. The poor guy's got a problem," Trump said.
Tesla shareholders are dismayed on multiple levels.
First, Musk taking on the president so publicly could further shrink the car maker's customer base by angering Trump backers.
"You could end up alienating both sides of the aisle in the course of just a few months. When you're a consumer-facing company, that's the opposite of what you want to do," Ives said.
By combing through daily tracking data, researchers found in a recent working paper that Musk's endorsement of Trump and role in the administration "politicised Tesla, polarised the electric vehicle carmaker's brand image and reputation, and likely resulted in partisan consumerism."
"Corporate leaders engage in partisan politics at the peril of their brand images and, ultimately, even the bottom line," professors from the University of Northern Iowa, Columbia University and Northeastern University wrote in the paper.
Secondly, Tesla relies on the federal government for tax credits and for approval of its controversial full-self driving technology, a green light that investors had been hoping for after the election. Neuralink, Musk's brain chip startup, is also reliant on FDA approval.
Bigger picture, the Trump administration will help set the regulatory landscape for autonomous vehicles, not to mention artificial intelligence and other Musk priorities. And the president has not been shy about flexing the power of the federal government to hurt his opponents.
"You want Trump nice in the sandbox. You don't want Trump on your bad side," Ives said.
Bill George, an executive fellow at the Harvard Business School and former CEO of health tech company Medtronic, described the recent feud as a "brutal breakup."
"Never go to war with the president of the United States," he said. "There's going to be a lot of collateral damage to your business."
Trump threatened on Thursday to go after Musk's business empire.
"The easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon's Governmental Subsidies and Contracts," Trump posted on his social media platform, Truth Social. "I was always surprised that Biden didn't do it!"
SpaceX, Musk's privately held space company, relies heavily on federal contracts, especially from NASA. SpaceX's Starlink satellite internet recently won business from the Federal Aviation Administration to help the agency upgrade networks used to manage US airspace.
Jeffrey Sonnenfeld, founder of the Yale Chief Executive Leadership Institute, said the lesson is not about chief executives taking political positions.
"The lesson here is that there is no honour among thieves. These are two mob bosses that have had a parting of ways. And now they are going to take each other down," Sonnenfeld told CNN.
Harvard Business School's George noted that Musk and Trump had been acting like "best bros" just days earlier.
"The lesson here is that you can either work in government or run your business," George said. "But you can't do both."
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