The word of the day is crashout. That's what the kids say these days instead of cluster*u*k.
What we have witnessed over the last 36 hours was indeed a crashout of epic proportions.
It started out somewhat innocently, with Musk and Trump sparring over electric vehicle (EV) tax credits and the Big Beautiful Bill (BBB).
Source: X
But something bigger was simmering behind the scenes...
As we all know by now, things escalated quickly. The President threatened to remove all Tesla's tax incentives and end SpaceX's contracts with NASA and other agencies. These were mostly hollow threats, because the former is already in the works, and the latter is impossible due to NASA's near-complete reliance on SpaceX.
Then Elon set off a political nuke by accusing Trump of withholding the Epstein files because DJT himself was in them. What possessed him to do this? Who knows? Was he under the influence of one or more psychoactive substances? Perhaps, but that's all speculation. Regardless, if there was any such evidence, it certainly would have been leaked by the deep state long ago to thwart one of his presidential campaigns.
Things have de-escalated a bit since. But at this point reconciliation seems impossible. Things were said which can't be taken back.
If you've been living in the woods without internet access (lucky you), check out ZeroHedge's full writeup.
Elon Musk presented his case against Trump as being primarily about government spending. He criticized the BBB as being full of pork and waste.
Was this truly the primary factor? It played a part, but there are more important issues at play here for Elon.
The real motivation behind the feud is twofold: EV credits and China.
Let's start with EV credits. Trump's BBB would eliminate the EV purchase credit of $7,500 by the end of 2025. This would essentially increase the price of EVs by $7,500. It would be a devastating blow to Tesla and other electric vehicle makers.
The BBB would also remove a $1,000 credit for home-charging stations, a $4,000 used EV credit, and various commercial incentives which boosted EV purchases.
Tesla is already facing rising competition in its core vehicle market, as we detailed in Tesla's Moment of Truth.
The elimination of long-standing government subsidies could be a devastating blow to Elon's empire if it goes through. It would give Chinese EV makers a further advantage, because they are still receiving massive help from their government.
(Full disclosure: Since 5/28 I have owned Tesla put options, which were unrelated to this feud and based on the upcoming robotaxi launch, which I believe will flop.)
The trade war with China plays a big role in this feud as well.
Tesla has extensive business dealings in China, building 54% of its total vehicles at the Shanghai Gigafactory. The company also relies on batteries from Chinese firm CATL for many of its vehicles. China's consumer market remains a top buyer of Tesla autos.
After Apple, Tesla likely has the most exposure to China among U.S. companies. A "decoupling" would be brutal for Elon's baby.
When Elon was at Trump's side, I suspect Musk was a moderating voice on China, pushing for negotiation and de-escalation.
With Musk out, China hawks such as Peter Navarro now have exclusive access to Trump's ear. My expectation is that Trump's now Musk-less team will play hard(er)ball with China and Xi. It may not work, but they'll try.
Rare earth elements (REEs) also come into play. If the U.S. continues to restrict China's access to key semiconductors and the equipment required to manufacture them, China will continue to restrict our access to key REEs.
The rare earths China is refusing to export to us are critical for manufacturing electric vehicles. They make up the magnets and other components that are absolutely critical for high-tech products.
The lack of REEs threatens to literally shut down EV production in the West. As reported by the Wall Street Journal this week:
Four major automakers are racing to find workarounds to China's stranglehold on rare-earth magnets, which they fear could force them to shut down some car production within weeks.
Several traditional and electric-vehicle makers and their suppliers are considering shifting some auto-parts manufacturing to China to avoid looming factory shutdowns, people familiar with the situation said.
So Tesla (and other automakers) are feeling the heat from the trade war with China. It's almost certain that this influenced Musk's breakup with Trump.
One interesting new development is that President Trump is officially going to China to meet with President Xi. From the BBC:
Trump confirms China trip after ‘very good’ call with Xi
Donald Trump has said he will visit China after speaking to its leader Xi Jinping over the phone.
The US president said he had reciprocated with an invite to the White House during the “very good talk” – though such a trip has not been confirmed by either side.
Thursday’s call is the first time the two leaders have spoken since Trump launched a trade war with Beijing in February. Chinese state media reported that the call happened at the White House’s request.
Earlier this week the President posted the following message on Truth Social:
“I like President Xi of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!”
Trump's visit to China could be called progress. But it's going to be an extremely tough negotiation, and we shouldn't expect much. Trump's inner circle is now primarily made up of China hawks, and that means they will almost certainly be playing hardball.
President Xi has shown that he is no pushover. So I expect Trump's visit to Beijing will not bear much fruit.
However, it is the beginning of direct conversations at the highest level, and that's something at least.
As for the relationship between Musk and Trump, that ship has sailed. How it affects Musk's business empire going forward remains to be seen, but I don't think it bodes well for Tesla at least. We'll keep an eye on this story and update you all as it develops.
SpaceX is a different story. The company has a near-monopoly on travel to the International Space Station (ISS), and their Starlink data network is completely unique and unmatched. Without Starlink, for example, Ukraine's defense forces would suffer huge communications problems.
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