Tesla Is Sinking Today -- Should You Buy the Stock Now?

Key Points

• Over the weekend, Tesla CEO Elon Musk announced the creation of a new political party.

• President Trump expressed frustration with the move.

• Investors did not like seeing Musk participate in politics earlier this year, and they do not seem thrilled by the idea of long-term involvement in a new political party.

Tesla's (NASDAQ: TSLA) stock has plummeted 7.5% as of 11:31 a.m. ET today, after Tesla CEO Elon Musk announced the formation of a new political party called the America Party over the weekend.

On X, Musk wrote, "Today, the America Party is formed to give you back your freedom." Furthermore, Musk said the new party will focus in the near term on winning seats in the U.S. House of Representatives and Senate.

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Image source: Getty Images.

The announcement seemed to reignite Musk's feud with President Donald Trump, the latest development in a contentious relationship. Musk recently stepped away from the government initiative known as the Department of Government Efficiency (DOGE) and criticized Trump's budget reconciliation bill. On social media accounts, Trump posted a long response to Musk's formation of a new party, saying the billionaire has gone "off the rails."

Should you buy Tesla now?

Tesla investors did not like seeing Musk get involved with DOGE because they thought it might damage the brand, and it certainly might have. So Musk creating a new party and potential long-term commitment to politics is likely the last thing they wanted.

When Trump won the election back in November, Tesla's stock soared for no obvious reason other than Musk's ties to Trump. Investors may have assumed that the relationship would benefit Musk's businesses. But now Musk and his businesses may actually be in a worse position than before the election.

But branding problems, even serious ones, can fade, and we've seen Musk and Trump reconcile before, so I wouldn't be surprised to see it happen again. But I'd still avoid Tesla for all the same reasons I've discussed in the past, including its monster valuation, its struggling core electric vehicle business, and Musk's overly bullish outlook.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.