• The strategic alliance between Donald Trump and Elon Musk has spectacularly unraveled, culminating in public attacks and threats to revoke federal contracts for Tesla and SpaceX.
  • Tesla's stock plummeted 14%, erasing over $150 billion in market value, following the fallout and uncertainty over government subsidies.
  • The Pentagon is now actively seeking alternative suppliers for major defense projects, directly challenging SpaceX's dominance and signaling a profound shift in government-business relations.

Just over a year after Elon Musk pledged nearly $300 million to Donald Trump's re-election campaign and was appointed a special advisor, the relationship has imploded, creating a crisis for Musk's corporate empire and sending tremors through the political landscape. The rupture became public in June 2025 when Musk openly criticized a massive budget bill championed by the Trump administration, calling it wasteful and economically harmful.

The public criticism triggered an immediate and fierce retaliation from the White House. According to people familiar with the matter, Trump personally directed staff to explore avenues for stripping Tesla of federal electric vehicle credits and to review the status of SpaceX's lucrative government contracts. The President then took his grievances public, threatening punitive actions against Musk's companies in a series of statements that rattled investors.

"When you cross this administration, there are consequences," said a person close to the situation, who asked for anonymity to discuss private deliberations. "The message was clear: fall in line or lose your access."

The financial impact was swift and severe. Tesla's shares went into a tailspin, shedding 14% of their value in a matter of days as institutional investors recalibrated their positions amid the political storm. The sell-off wiped out more than $150 billion in market capitalization, reflecting deep concerns over the company's future without crucial government support.

For SpaceX, the stakes are arguably even higher. The Pentagon has since accelerated efforts to diversify its supplier base for key defense and space launch projects, a move that directly threatens one of SpaceX's core revenue streams. "We are exploring all options to ensure mission continuity and competitive pricing," a defense official said, confirming that the department was actively courting other aerospace firms for contracts that were once considered secure for Musk's company.

Musk's response escalated the conflict further. After resigning his advisory role, he made indirect references to the unreleased Jeffrey Epstein files, a move seen in political circles as a direct challenge to Trump's credibility. The public feud has since polarized voters and corporate stakeholders alike, with Musk's popularity among Republicans plummeting even as about 40% of respondents in a recent poll expressed support for his stalled effort to form a third political party.

The collapse of this alliance marks a dramatic reversal from the strategic partnership that once blurred the lines between Silicon Valley and Washington. The fallout now poses fundamental questions about the stability of government contracts for major tech firms and the risks inherent when corporate titans become deeply enmeshed in political power struggles. With the 2028 election cycle already on the horizon, the prospects for reconciliation appear dim, suggesting the economic and political repercussions will linger for years to come.

Correction: An earlier version of this article misstated the total market value erased from Tesla's stock; the correct figure is over $150 billion.