Tesla and SpaceX shares decline following Democratic midterm election victories

Tesla and SpaceX shares fell on Wednesday after the Democratic Party secured a decisive victory in both chambers of Congress. This decline is particularly notable as the overall market rebounded and turned positive, with Elon Musk's two publicly traded companies performing poorly. CEO Elon Musk has mocked the Republican Party's election losses, but the new administration will significantly alter how it handles Tesla and SpaceX, prompting both companies to adjust their outlook. We will explore this in more detail.

Tesla ($TSLA) shares declined during regular trading after the Democrats gained control of the House and Senate. The stock dropped 2.32% at 1:45 PM Eastern Time, trading at approximately $389.30. This pressure stems not only from Elon Musk's political spending, estimated to reach $450–474 million in this election cycle, with about $224 million directed to Texas. In the state, Tesla now faces a Democratic governor and a Democratic senator, with Gina Hinojosa defeating Greg Abbott and James Talarico overcoming Ken Paxton.

Political Challenges Facing Tesla

The Gigafactory in Austin, Robotaxi pilot programs in several Texas cities, and any related artificial intelligence computing expansions are now under the oversight of a new state executive who opposes certain corporate subsidies, raising concerns about a moratorium on new data center construction. At the federal level, Democratic control of key committees opens the door for deeper scrutiny of Tesla's autonomous driving safety record, federal energy storage and manufacturing incentives, and the national security implications of any combination with SpaceX.

Investors are also weighing whether the company's close ties to the former Republican leadership will lead to permit delays, additional hearings, or stricter regulations on the rollout of fully autonomous driving.

For Tesla, political changes increase short-term friction between state permits and federal regulatory approvals. Even potential mergers with SpaceX may face slowed scrutiny. Core growth drivers such as vehicle deliveries, energy deployments, and Robotaxi launches remain stable, but the stock now carries a higher political risk premium, which could affect valuations until the company establishes a workable relationship with the new Texas leadership and congressional majority.

Election Impact on SpaceX

SpaceX ($SPCX) shares also fell on November 4, following the Democratic midterm election victory, closing at $134.97, down 4.49%. Despite broader indices stabilizing, this decline highlights the company's unique reaction to the election results.

Elon Musk's substantial donations during the Texas campaign, particularly in races where both companies faced losses, place SpaceX's Starbase launch facility and headquarters under the new Democratic governor. At the federal level, Democratic control of Congress may lead to heightened scrutiny of important contracts with NASA, the Department of Defense, and other revenue-supporting entities, while also reviewing the national security uses of Starlink and any Tesla merger. Analysts note that empowered committees could hold hearings and request documentation regarding these relationships.

For SpaceX, the election results increase the risks of contract award delays, rising compliance costs, and stricter limitations on artificial intelligence and satellite infrastructure expansion, especially given discussions in Texas about a moratorium on data centers. A merger with Tesla may face political friction, potentially slowing down the integration of launches, connectivity, and autonomous capabilities. While Starlink's growth and launch frequency remain key drivers, the company now faces a more challenging path regarding federal funding and state-level operations, necessitating management to rebuild connections with the new congressional majority and Texas leadership to mitigate this impact.