Tesla and SpaceX Face New Political Risks After Democratic Sweep in Texas

Tesla and SpaceX shares fell after Democrats won control of both chambers of the U.S. Congress and secured major victories in Texas, raising questions about the future regulatory environment for Elon Musk's companies

Tesla and SpaceX face potential regulatory challenges after Democratic victories in Texas and the U.S. midterm elections. [Photo: Tesla]

The election results could affect data center development, government contracts and a potential merger between the two companies, Pras Subramanian reported for Yahoo Finance.

Musk spent at least $446 million backing Republican candidates and political groups ahead of the election, including approximately $224 million in Texas, according to figures cited by The New York Times.

A separate Fortune report estimated his overall spending at $474 million.

Democrat Gina Hinojosa defeated Republican Gov. Greg Abbott, while Democrat James Talarico defeated Republican Ken Paxton in the Senate race. Hinojosa's victory ended the Republican Party's hold on the Texas governorship, which began in 1995.

Tesla and SpaceX both declined by more than 2% during Wednesday's trading, even as broader U.S. stock markets advanced.

The companies' shares faced pressure from concerns that Democratic lawmakers could increase scrutiny of Musk's business interests and plans for expansion.

“Both of these stocks have major headline risk if we get a blue sweep,” Vikram Rai of First New York told Bloomberg before the election.

Tesla operates its Austin Gigafactory and has been expanding its robotaxi operations in Texas. SpaceX operates its Starbase launch facility in the state and moved its headquarters from California to Texas in 2024.

Hinojosa has pledged to impose a moratorium on new data center approvals until the Texas Legislature adopts additional safeguards.

Such a policy could affect plans for large-scale computing infrastructure and related investments in the state.

Democratic control of Congress could also lead to greater scrutiny of Tesla's autonomous-driving operations and SpaceX's government and national security contracts.

Another potential issue is a proposed Tesla-SpaceX merger.

Reports have indicated that the companies are exploring the possibility of a combination, although discussions remain preliminary. A transaction could face additional regulatory scrutiny in 2027.