Tesla, SpaceX Stocks Are Down. It’s the Midterms.

Coming into Wednesday trading, Tesla stock was down 11% this year. (Jean-François FORT / Hans Lucas / AFP via Getty Images)

Key Points

Tesla and SpaceX stocks fell early Wednesday following Democratic victories in the U.S. midterm elections.
Democrat Gina Hinojosa defeated Republican Texas Gov. Greg Abbott, threatening the state’s status as an AI data center hub.
Elon Musk spent almost half a billion dollars on the midterm races, with much of that money going to Texas.

Tesla and SpaceX stocks were lower early Wednesday, following the Democrats’ routing of Republicans in the hotly contested U.S. midterm elections.

The problems for the stocks boil down to CEO Elon Musk, AI, and Texas.

Shares of Musk’s EV company were down 4.1% at $382.25 in premarket trading. SpaceX shares were off 4.4% at $135.16. S&P 500 and Dow Jones Industrial Average futures were up 1% and 1.4%, respectively.

The moves came after Democrats picked up seven seats in the Senate and 25 seats in the House, giving the party control of both chambers of Congress. More important, Democrat Gina Hinojosa defeated Republican Texas Gov. Greg Abbott, according to AP. Her victory is a huge upset for the state’s Republican party, who have held the governorship for more than 30 years.

Hinojosa’s win is also a blow to the AI industry. Texas welcomed data center companies who were unable to get permits in other states. Its status as a data center hub would appear to be over.

Abbott recently imposed a moratorium on AI data centers in September but is widely expected to lift it later this year or in early 2027. Hinojosa, on the other hand, made data center opposition a centerpiece of her campaign and says she wants to keep the pause in place until Texas lawmakers enact laws regulating their water and power use.

SpaceX’s AI data centers are in Tennessee and Mississippi, but Tesla has a supercomputing cluster in Texas. What’s more, both companies are rapidly expanding there footprints in their home state of Texas, building semiconductor fabs, rockets, and more. Musk doesn’t want to see that growth slow.

He might not have a choice now. The night was particularly dissappionting for the world’s richest human, who has become the largest political donor in America, spending almost half a billion on the midterm races. Much of that money went to Texas. It didn’t get Musk’s desired outcome. Democrat James Talarico defeated Senate Republican candidate Ken Paxton.

Tesla and SpaceX didn’t respond to requests for comment about Musk’s donations.

A Democratic Congress could potentially mean less federal money for SpaceX, but its launch contracts with the government are relatively insignificant to its $1.8 trillion valuation. Even if a Democratic Congress wanted to sever ties with Musk’s company, they don’t have many other options for space launches.

Wednesday’s early stock move is mainly about AI.

Both of Musk’s companies are investing heavily in AI. SpaceX wants to put AI data centers in space. Tesla is using AI to train robo-taxis and robots. Investors expect those business to generate trillions in revenue and billions in profits over the coming years.

The reaction in Tesla’s stock is very different from two years ago. Shares gained 14.8% on Nov. 6, the day after President Donald Trump’s election. Shares closed at $288.53 and quickly rose above $400 in the coming weeks.

Write to Al Root at allen.root@barrons.com.

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