Context:

Tesla shares experienced a significant drop of up to 7.6% in premarket trading following Elon Musk's announcement of forming a new political party, which elicited criticism from President Donald Trump. The stock partially recovered but remained 6.5% lower by early morning trading, reflecting investor concerns over potential impacts on US government EV subsidies and Musk's perceived distraction from Tesla. The conflict between Musk and Trump began after Musk criticized a major tax policy signed by Trump, arguing it would exacerbate the federal deficit. Musk's foray into politics has coincided with declining Tesla sales and intensified competition, threatening its leading position as the world's largest EV maker. His political involvement and the ensuing controversies have further eroded Tesla's stock value, which has decreased by nearly 23% this year.

Dive Deeper:

• Tesla's stock plunged sharply in premarket trading after Elon Musk announced the creation of a new political party, sparking a contentious response from President Donald Trump who criticized the move as disruptive and confusing.

• Investor concerns were heightened by the potential reduction in US government electric vehicle subsidies and Musk's apparent distraction from Tesla due to his political activities, as noted by market strategist Neil Wilson.

• Musk's conflict with Trump originated from Musk's criticism of a significant tax and domestic policy bill, which Musk believes will inflate the federal budget deficit, leading to Trump's dismissal of third-party political efforts as chaotic.

• Tesla has been facing a challenging period with a record drop in second-quarter sales and its first annual sales decline as a public company, compounded by increasing competition from automakers like BYD.

• Musk's involvement in US government affairs and subsequent mass layoffs have led to protests outside Tesla showrooms, further adding to the negative sentiment around the company's market performance.

• The combination of political distractions, declining sales, and competitive pressures has resulted in a substantial 23% decline in Tesla's stock value this year, reflecting investor skepticism about the company's future prospects.

• Despite stepping down from his government role in May to focus on his companies, Musk's political ambitions and ongoing feud with Trump continue to draw him away from Tesla, raising concerns among investors.