Musk's Political Ambitions, CoreWeave's Big Purchase | Bloomberg Tech 7/7/2025

Key Concepts

• America Party: Elon Musk's newly formed political party.
• Tesla's Stock Performance: Impacted by Musk's political activities and broader economic factors.
• Regulatory Risk: Exposure of Tesla and SpaceX to government regulations and policies.
• Fiscal Policy: Differences in opinion between Elon Musk and President Trump.
• Department of Government Efficiency (DOGE): Former advisor James Fishback and his open letter to Tesla's board.
• Azoria ETF: An ETF designed to combine Tesla stock with asymmetric call options, now delayed due to Musk's political ambitions.
• Trade Deals & Tariffs: President Trump's trade policies and their potential impact on tech companies and global trade.
• Sectoral Tariffs: Tariffs based on national security vulnerabilities in specific sectors (e.g., semiconductors, pharma).
• Reciprocal Tariffs: Tariffs imposed in response to another country's tariffs.
• U.S.-China Trade Relations: Fragile truce centered around rare earths and export controls.
• Chip Curbs: Restrictions on shipments of chips to Malaysia and Thailand to prevent smuggling into China.
• AI Diffusion Rule: A rule that restricted countries' access to advanced AI chips on a three-tiered basis.

Elon Musk's Political Aspirations and Tesla's Stock

• Formation of the America Party: Elon Musk's creation of a new political party is raising concerns among analysts and investors about his focus on Tesla.
• Stock Impact: Tesla's stock is down more than 27% year-to-date, partly attributed to the distraction caused by Musk's political ambitions.
• Trump's Opinion: President Trump considers the third-party effort "ridiculous," adding to the negative sentiment.
• Analyst Concerns (Max Chafkin):
  • Poor relationship with the party in power can have negative consequences for Tesla (regulatory exposure, EV tax credits) and SpaceX (government contracts).
  • Personal affront due to Musk's criticism of fiscal policy and the tax bill impacting Tesla's bottom line.
  • William Blair downgraded the stock, and J.P. Morgan estimates a 40% hit to profitability due to regulatory changes.
• Open Letter to Tesla's Board (James Fishback): Urges the board to seek clarity on Musk's full-time obligations to Tesla in light of his political activities.
• Clarity on Commitment: If Musk cannot be a full-time CEO, the board needs to hold him accountable.
• ETF Delay: Azoria ETF, planning an $8 billion investment in Tesla, is delaying listing due to concerns about Musk's focus.
• No Synergies: Unlike Musk's other ventures (SpaceX, xAI) which have synergies with Tesla, his political party does not offer any benefits.

Trade and Tariff Announcements

• Trump's Trade Policies: President Trump is expected to announce trade deals and deliver tariff warnings, creating anxiety in the market.
• Deadline: Negotiations will go down to the wire come July 9.
• Maximum Pressure: The administration's strategy is "maximum pressure" to get trading partners to put their best offers on the table.
• Priority Shifts: There is a potential reversal in which countries seem to be getting priority, with the U.S. expressing frustration with Japan and threatening tariffs on countries aligned with the BRIC nations. The EU had a phone call with President Trump, signaling a potential shift in favor.
• Sectoral Tariffs Looming (Liza Tobin): Sectoral tariffs based on national security vulnerabilities (e.g., semiconductors, pharma) are still coming and could be more consequential than reciprocal tariffs.
• U.S.-China Trade Truce: China, Canada, and Mexico are on a separate track. A fragile truce exists with China, centered around rare earths and export controls, but it could easily be disrupted.
• Corporate Strategy: Companies need a China strategy that considers China's track record and the potential for trade negotiations to break down.
• Rare Earths: The U.S. needs a strategy on rare earths, addressing the lack of demand.

Technology and M&A

• HUAWEI's Research Lab: Pushing back on allegations it relied on rival models, stating the use of open source code is common practice.
• China's Restrictions: Beijing will exclude E.U.-based companies from government procurement of certain medical devices.
• TikTok's New App: TikTok may be building a new version of the app for U.S. users, with the existing app potentially working only until March of next year.
• Coreweave Acquires Core Scientific: Coreweave agrees to buy Core Scientific in a $9 billion all-stock transaction to expand data center capacity.
• M&A Consolidation: Consolidation is expected among companies that consult other companies, driven by AI.

Investor Sentiment and Tesla

• Elon Musk's Political Risk (Michael Greene): Musk has alienated both Democrats and Republicans, creating political risk for Tesla.
• Key Man Risk: Musk is considered central to the company, and any issues affecting him could impact Tesla.
• Sales Decline: Tesla faces the potential for a sales decline due to an aging product mix and competition from Chinese companies.
• Valuation Concerns: It is hard to create a compelling argument for aggressively buying Tesla now, other than the desire to gain exposure to high volatility.
• Leveraged ETFs: Leveraged ETFs offer investors a tool to access leverage, but the question is whether they want levered exposure to a business facing political liabilities and growing competition.

Chip Curbs and Restrictions

• Restrictions on Chip Shipments: The White House is set to restrict shipments of chips to Malaysia and Thailand to crack down on smuggling into China.
• Preventing Diversion: The goal is to prevent buyers in Malaysia and Thailand from diverting chips to China.
• U.S. Objective: The U.S. aims to slow China's position in the race to dominate artificial intelligence.
• Potential Impact on American Companies: Despite initial concerns about shares dropping in Malaysia and Thailand, American companies may be most exposed to the potential initiative.
• Demand Signal (Referencing NVIDIA): The U.S. government's efforts to control this technology indicate strong demand.
• Supply Chain Preparedness: The United States has been preparing for this, with Taiwan Semiconductor building a lab in Arizona.

Key Takeaways and Conclusion

The primary concern revolves around Elon Musk's newly formed political party and its potential impact on Tesla. Analysts and investors worry that his political ambitions could distract him from his responsibilities as CEO, negatively affecting Tesla's stock performance and long-term prospects. The situation is further complicated by President Trump's disapproval and the potential for regulatory challenges. As such, clarity is needed from Tesla's board regarding Elon Musk's commitment to the company and its future plans. Additionally, broader macroeconomic factors such as potential trade and tariff announcements by President Trump, tensions in U.S.-China trade relations, and restrictions on chip shipments could impact the technology sector. Companies must be prepared to navigate these uncertainties and develop strategies that account for both the short-term and long-term implications of these developments.