Shares of Tesla and SpaceX experienced significant declines on Thursday afternoon, dropping by approximately 11% and 9%, respectively. Investors expressed concern that Elon Musk’s companies might face stricter regulation and new congressional investigations following the conclusion of the U.S. midterm elections. These drops aligned with a broader sell-off in the technology sector, resulting in aggregate market capitalization losses for the two firms exceeding $420 billion since the close of trading on Tuesday.
The financial impact has been substantial for Musk personally. According to Forbes, his net worth, which had surpassed $1 trillion following SpaceX’s initial public offering in June, has now fallen below $800 billion. This represents a decrease of roughly $90 billion over the past week. Despite this decline, he remains the wealthiest individual in the world.
Musk had invested heavily in the election cycle, becoming the largest donor to Republican candidates and causes. The Financial Times first reported that his financial contributions exceeded $470 million. However, despite this significant financial backing, most of the candidates supported by Musk lost their races. Democrats secured control of both the House and the Senate in the election results.
The outcome in Texas, where both Tesla and SpaceX are headquartered, proved particularly notable. Democratic candidates James Talarico and Gina Hinojosa won their races for Senate and Governor, defeating longtime Musk allies Ken Paxton and Greg Abbott, who had served as state Attorney General and Governor, respectively.
Analysts at Deutsche Bank highlighted the potential policy implications in a note released on Wednesday. They suggested that while policy outcomes are difficult to predict, SpaceX could face incremental headwinds in the new political environment. The analysts specifically pointed out that Gov.-elect Hinojosa made data centers a major campaign issue. She called for a moratorium on new approvals until the legislature implements stronger protections regarding water use, electricity costs, local control, and incentives. She also criticized tax breaks granted to large facilities.
This political stance is relevant because Tesla and SpaceX are both expanding their AI infrastructure in Texas. The companies plan to construct Terafab, a massive facility in Grimes County that will include a data center and a sprawling semiconductor factory. Additionally, SpaceX has job listings indicating plans to build a supercomputer at its Starbase launch facility and company town in Texas.
Deutsche Bank analysts warned that SpaceX’s Texas compute capacity could face delays due to the new regulatory climate. They noted that the company’s capital expenditures might need to increase to satisfy tighter, anticipated regulations surrounding data center construction. This could affect the timeline and cost of their expansion plans.
Separate from market movements, regulatory scrutiny is intensifying. CNN reported, citing an aide to a Democratic senator, that Musk and SpaceX have been instructed to preserve records concerning restrictions imposed on a military version of the Starlink satellite internet service in Ukraine. These restrictions reportedly hampered the country’s ability to defend against attacks by Russia.
The increased scrutiny could also impact Musk’s long-term corporate strategy. He has previously promoted the idea of merging SpaceX and Tesla, though he has acknowledged that shareholder approval would be required first. Regulatory obstacles could now block these chances for a merger.
By the close of business on Thursday, the combined market value lost by SpaceX and Tesla had reached approximately $456 billion. The market reaction underscores the sensitivity of investor sentiment to political shifts that may influence the regulatory landscape for major technology and aerospace firms.
