Tesla shares fell nearly 8% on Monday after CEO Elon Musk's plans to launch a new U.S. political party reignited concerns about his commitment to the company's future as it struggles with declining sales.
Musk unveiled the 'America Party' over the weekend after a public dispute with President Donald Trump on the tax-cut and spending bill. Trump, who was once an ally of Musk, called the latest idea "ridiculous".
Trump had threatened to cut off the billions of dollars in subsidies that Musk's companies receive from the federal government after their feud erupted into an all-out social media brawl in early June. Musk's political move comes days after Tesla posted a second straight drop in quarterly deliveries, pressuring its stock which has lost 35% since hitting a record high in December and is the worst performing among the 'Magnificent Seven' this year.
"I and every other Tesla investor would prefer to be out of the business of politics. The sooner this distraction can be removed and Tesla gets back to actual business, the better," said Camelthorn Investments adviser Shawn Campbell, who owns Tesla shares.
The company is set to lose more than $80 billion in market valuation if current losses hold, while traders are set to make about $1.4 billion in paper profits from their short positions in Tesla shares on Monday.
TESLA BOARD IN SPOTLIGHT
Musk's latest move also raises questions around Tesla board's course of action. Its chair, Robyn Denholm, in May denied a Wall Street Journal report that said board members were looking to replace the CEO.
Investment firm Azoria Partners has delayed the listing of a Tesla exchange-traded fund soon, with CEO James Fishback calling for the board to evaluate if his political involvement is compatible with his obligations to Tesla as CEO.
"We pulled the Azoria Tesla Convexity ETF because we have real concerns about Elon's ability to be a full-time CEO for Tesla with his new full-time job running 'America Party'," Fishback told Reuters on Monday.
Tesla's board, which has been criticized for failing to provide oversight of its combative, headline-making CEO, faces a dilemma managing him as he oversees five other companies and his personal political ambitions.
"This is exactly the kind of thing a board of directors would curtail - removing the CEO if he refused to curtail these kinds of activities," said Ann Lipton, a professor at the University of Colorado Law School and an expert in business law.
The company's shares and its future are seen as inextricably tied to Musk, the world's richest man whose wealth is constituted significantly of Tesla stock. He is Tesla's single largest shareholder, according to LSEG data.
His stake should ideally not impact the board's ability to look for potential replacements as it can choose to remove and appoint CEOs without putting in a shareholder vote, said Xu Jiang, a professor of business administration at Duke University's Fuqua School of Business.
But such a move could be highly unlikely considering the board has often defended Musk.
"The Tesla board has been fairly supine; they have not, at least not in any demonstrable way, taken any action to force Musk to limit his outside ventures, and it's difficult to imagine they would begin now," Lipton said.
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