• Tesla (NASDAQ:TSLA) falls 4.3% and SpaceX (NASDAQ:SPCX) drops 4.6% as investors reassess political and regulatory risks after Democrats win both chambers.
  • Texas governor race flips to Democrat Gina Hinojosa, who supports pausing AI data-center development, potentially affecting Tesla's Texas operations.
  • Musk's nearly $500 million in political spending fails to prevent a power shift that could increase congressional oversight of his companies.

Political Earthquake Hits Musk Empire

Tesla and SpaceX shares tumbled on Wednesday, with Tesla touching a two-week low and SpaceX hitting an over two-month low, after Democrats secured projected victories in both the House and Senate, according to Decision Desk HQ projections reported by Bloomberg. The selloff reflects investor concerns that a power shift in Washington could usher in tougher regulatory scrutiny for companies led by Elon Musk, who spent nearly $500 million backing Republican candidates, according to the New York Times (NYSE:NYT).

By mid-morning, Tesla was down 4.3% and SpaceX down 4.6%, though earlier premarket trading showed declines of 4.1% and 4.4%, respectively. The drops came even as broader U.S. equity futures rose, with S&P 500 futures up about 1% and Dow futures 1.4%, underscoring that the selloff is company-specific rather than a market-wide reaction to the election results.

Texas Twist Adds Pressure

The political calculus grew more complicated after Democrat Gina Hinojosa defeated Republican Governor Greg Abbott in Texas, according to Barron's, citing the Associated Press. Hinojosa campaigned on maintaining a pause on AI data-center development until lawmakers establish rules governing electricity and water consumption. That stance could directly impact Tesla's substantial AI-training infrastructure in the state, where it operates a supercomputing cluster. SpaceX's existing AI data centers are located in Tennessee and Mississippi, limiting its direct exposure to Texas policy, but the broader signal of heightened regulatory caution around AI infrastructure is weighing on both companies.

Investors are parsing whether the election results translate into concrete policy changes or simply heightened risk. No new federal restrictions or contract cancellations have been announced, but the shift in congressional control raises the specter of increased oversight, budget scrutiny, and legislative hurdles for Musk's businesses.

Financial Pressures Mount

The political headwinds come as both companies navigate significant financial challenges. Tesla's third-quarter results, released October 21, showed revenue roughly flat at $28.05 billion but operating income plunging 56% to $718 million, with operating margin narrowing to 2.6% from 5.8%. Free cash flow tumbled 62% to $1.53 billion, and net income attributable to common shareholders fell 43% to $787 million. The company cited lower regulatory-credit revenue and tariff-related customer refunds as headwinds.

SpaceX, which went public in June at $135 per share and now sports a valuation of approximately $1.8 trillion, reported third-quarter revenue of about $14.6 billion, up 161% year over year, and net income of $4.4 billion. However, the company also recorded nearly $10 billion in quarterly free-cash-flow outflow, with $16.4 billion spent on its AI business, according to an analysis by Inc. That cash burn makes access to capital and the pace of infrastructure development critical to the investment case.

Merger Talk Adds Uncertainty

Adding another layer of complexity, independent board committees are reportedly studying a potential merger between Tesla and SpaceX, though no terms have been agreed. Barclays (NYSE:BCS) estimates suggest Musk could hold roughly 56% of combined voting rights with about 37% economic ownership under one structure, according to Billionaires.Africa, though those figures are scenario estimates. Any deal would likely face intense political scrutiny, especially with Democrats controlling Congress.

A spokesperson for Tesla did not respond to a request for comment, while SpaceX declined to comment on the market moves or merger discussions.

What's Next

In the near term, investors will watch for final election tallies, any concrete oversight proposals from Congress, and the incoming Texas administration's implementation plans. The divergence between Tesla and SpaceX's declines and the broader market's rise highlights that this is a repricing of political and regulatory risk specific to Musk's companies. Longer term, the key questions remain whether both firms can execute on their AI infrastructure ambitions under a less favorable political environment and whether a Tesla-SpaceX merger advances amid heightened scrutiny.

Correction: An earlier version of this article misstated the precise timing of the share price declines. The figures cited reflect intraday trading as of Wednesday morning, not closing prices.