Tesla’s stock tumbled on Monday after CEO Elon Musk announced plans to form a new political party, triggering a sharp rebuke from US President Donald Trump and reigniting fears that Musk’s political ambitions may once again distract from the company’s core business.

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Shares opened down 7.6% in New York after falling in premarket trading, putting Tesla on track for its steepest single-day drop in over a month. The sell-off followed a weekend of online sparring between Musk and Trump, who described the billionaire as “off the rails” and warned that a third party would only create “total disruption and chaos.”

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Musk unveiled the so-called America Party on Saturday, positioning it as an alternative to what he called the “one-party system” embodied by both Democrats and Republicans. Trump, who had previously allied himself with Musk by appointing him to head the Department of Government Efficiency, dismissed the move as “ridiculous.”

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The clash has spooked investors already uneasy about Tesla’s direction. “Investors had cheered Musk stepping back from frontline politics,” noted Neil Wilson, chief market analyst at Saxo Markets. “They’re now worried he’s getting sucked back in and taking his eye off Tesla.”

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The timing couldn’t be worse. Tesla last week reported a 13.5% drop in second-quarter vehicle sales year-on-year – the sharpest decline in its history. It also marked the second consecutive quarter of falling deliveries and capped off the company’s first annual decline in sales since going public.

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At the same time, Tesla is facing growing competitive pressure from Chinese rival BYD, which is on course to overtake Tesla as the world’s top EV maker by annual sales, despite not yet entering the US market.

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Musk’s entanglement in American politics has added to the turbulence. While some investors had hoped his May exit from his White House role would refocus his attention on Tesla, his decision to launch a political party suggests otherwise. Protests against Tesla’s perceived ties to the Trump administration have already affected brand perception in both the US and Europe.

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Shares of Tesla nearly doubled after the 2024 US election on expectations that Musk’s alignment with Trump would benefit the company. But that optimism has since faded. Monday’s fall brings Tesla’s share price down more than 35% from its December peak.

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As Musk leans further into the political fray, questions are growing over whether Tesla can maintain its leadership in a fast-changing global EV market without the full focus of its chief executive. Investors will be watching closely for signs of stabilisation — both in the boardroom and in the headlines.

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