Why Tesla Stock Fell As The S&p 500 Climbed After The Us Midterms

Tesla (NASDAQ:TSLA) stock fell around 5% after the US midterms. That doesn’t sound like a particularly big deal, but it happened on a day when the S&P 500 as a whole climbed 1.6%.

There are two parts to this – a Congress that can frustrate the President now, and the prospect of a Democrat government later.

The good news

Before the current administration, Tesla made a lot of money selling regulatory credits to other carmakers. This was almost pure profit – until Republicans came in with other ideas.

In 2024, credits brought in $2.76bn – around 39% of Tesla’s operating income. In other words, they were a lifeline while car sales were cyclically weak.

Those lost credits account for around a third of the year-on-year fall in operating income. So their return could give the bottom line a meaningful boost.

That, however, would need a Democrat administration – which is at least two years away. And the benefits might be short-lived.

Why is the stock down?

Credits were useful for Tesla, but they were pretty much vital for its competitors. Rivian booked $164m of them in the first half of 2026 and still made an automotive gross loss.

Tesla’s manufacturing scale gives it the lowest costs in the industry. But while it was struggling to break even, others were selling vehicles at a loss.

That’s unsustainable, but had it put competitors out of business it would have been excellent for Tesla’s long-term competitive position.

An easier environment, however, lets rivals back into the game. So is a short-term profit boost worth that?

Ongoing issues

The bigger story is beyond car sales – it’s robotaxis and humanoid robots. That’s where Musk says the real value lies, and he has long flagged regulation as the main challenge.

On autonomy, Tesla has ground to make up. Waymo drives around seven times more driverless miles per week and has 87 times more cumulative miles.

Tesla’s big strength, however, is still intact. Its camera-only approach to autonomy gives it a huge cost advantage when it comes to building vehicles.

Tougher scrutiny – or at least less political influence – is unwelcome. And this doesn’t need a Democrat President — Congress alone can deliver it: one senator is already joking about planting new forests for all the subpoenas.

My view

The result also raises questions about a potential SpaceX merger. But I think that’s more of a Musk issue than a Tesla one – and perhaps part of why he spent so heavily.

I expect short-term profitability to improve if Democrats win the White House, but that’s not the situation right now. Long term though, things look more challenging. 

The best operators find ways to succeed in difficult political, economic, and business environments and Elon Musk is as resourceful as they come. So I’m not writing off Tesla just yet.

The question of what to buy right now, however, is a different one. The election result looks like a setback for Tesla, rather than a knockout blow, but I think there are much more obvious opportunities elsewhere.

Should you invest £5,000 in Tesla right now?

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Stephen Wright does not own shares in any of the companies mentioned.

The post Why Tesla stock fell as the S&P 500 climbed after the US midterms appeared first on The Twelfth Magpie.

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