Shares of Elon Musk’s SpaceX and Tesla fell in premarket trading on Wednesday as Democrats’ sweeping election victory raised the prospect of tighter scrutiny and regulation of AI companies, while also casting uncertainty over Musk’s expansion plans and a potential merger between his two companies.
SpaceX SPCX and Tesla stocks fell over 7.5% and 5.5%, respectively, during premarket trading on Wednesday.
The decline came even as broader US equity futures rallied, with contracts linked to the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all rising more than 1%.
The election results have raised questions about the political environment facing Musk, who contributed about $474 million to Republican candidates and political groups during the election cycle.
His spending was among the largest by any individual donor in a single election cycle, excluding wealthy candidates financing their own campaigns.
Musk’s political bets face setbacks; Texas defeat stands out
Musk’s contributions included about $168 million to the Senate Leadership Fund, the main super PAC supporting Republican Senate candidates.
Much of that money effectively went towards backing Ken Paxton, the Republican nominee in Texas.
However, several candidates supported by Musk suffered defeats, including Paxton in the Texas Senate race and Vivek Ramaswamy in the Ohio gubernatorial contest.
The results could complicate Musk’s ambitions in Texas, which has become a major base for his business empire.
Tesla operates its largest US vehicle factory outside Austin, while SpaceX launches rockets from its Starbase facility in South Texas.
Musk is also pursuing investments in artificial intelligence and semiconductor manufacturing.
Those projects depend heavily on state-level decisions involving electricity supply, water availability, environmental permits, infrastructure, and tax incentives.
Democrat Gina Hinojosa’s victory over incumbent Greg Abbott in the Texas gubernatorial race could therefore create fresh challenges for the billionaire’s expansion plans.
Hinojosa campaigned against generous corporate subsidies and has called for a moratorium on new data centres, an end to industry tax breaks and requirements for developers to cover the full cost of their electricity consumption.
In her victory speech on Tuesday, she vowed to take power away from the “powerful people who have gotten very comfortable running this state.”
Republicans still control the Texas Legislature, limiting the scope of changes Hinojosa can make.
However, her administration could adopt a tougher approach to permits and business incentives, potentially slowing new projects.
Musk appeared to respond to the election outcome on X on Wednesday morning, writing: “Data centers in space looking pretty appealing right now.”
He followed it with a joke about election interference, saying: “Guess my election-interfering space lasers didn’t work this time.”
The Democratic victory could also expose Musk to greater congressional scrutiny.
Lawmakers have signalled plans to investigate several aspects of his activities, including his tenure as head of the Department of Government Efficiency, his companies’ federal contracts and his role in the Russia-Ukraine war.
Political risk could weigh on Tesla and SpaceX
Kathleen Brooks, research director for the UK at XTB, said Musk was considered “an anathema” to most Democrats and that the party’s election gains could affect his companies in two ways.
“Firstly, AI companies may face greater scrutiny and regulation under a Democrat controlled Congress, and secondly, it puts into doubt a potential merger between SpaceX and Tesla,” she wrote.
Brooks said Congress could not directly prevent a merger between the two companies but could slow the process through additional scrutiny.
“Musk could push back on this, and rush through a merger in the next 18 months before Trump leaves office. However, there is now a political risk premium attached to both Tesla and SpaceX that could weigh on their share prices, after both stocks have rallied more than 20% in the past 3 months,” she wrote.
She added that Tesla had previously been sensitive to political developments, with the stock rallying strongly after President Donald Trump won the 2024 election.
“Musk had poured hundreds of millions into the Republican Party ahead of these elections; Tesla has been sensitive to politics in the past. The stock experienced a strong rally after President Trump won in 2024, and we could see stocks linked to Musk struggle now that his political enemies have won back control of Congress,” she said.
Gary Black, managing partner at The Future Fund, also attributed the declines in both stocks to Musk’s ties with Trump and lower perceived odds of a merger.
“Strong 2026 S&P earnings growth (EPS $369 +33% y/y, P/E 20.5x) underpin equities, though TSLA’s valuation seems excessive amid declining future earnings estimates, and increased autonomous competition from $GOOG, $ANZN, $BIDU and others,” he wrote.
The election outcome adds another source of uncertainty for Tesla investors, who must weigh the company’s valuation and competitive pressures against the possibility of a more challenging regulatory and political environment for Musk’s wider business interests.
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