How did Musk and Trump get so close?

Once a vocal critic of Donald Trump during his 2016 United States election campaign, Elon Musk, the billionaire CEO of Tesla and SpaceX, pivoted from his Democratic Party roots to embrace Trump’s policies during the Republican's second term.

Frustrated by Obama-era regulations stifling his ventures, Musk embraced Trump’s agenda of tax cuts and deregulation.

Their bond grew from mutual respect to a robust political alliance, which saw Musk last year back Trump's reelection campaign to the tune of nearly $300 billion (€263 billion).

When Trump returned to the White House in January, the world's richest man took on an advisory role in the administration, leading the controversial Department of Government Efficiency (DOGE).

Tasked with slashing public spending, Musk's role stirred controversy, impacting Tesla's stock price and auto sales. After months of pressure from investors, Musk agreed last month to scale back his work in Trump's government. 

What sparked the public feud between Trump and Musk?

On Thursday, wearing a T-shirt emblazoned with the "The Dogefather," Musk was given an initially cordial farewell by the president in the Oval Office.

But Trump could not contain his frustration at Musk's earlier criticism of his administration's sweeping tax and spending bill, which the Tesla founder called fiscally reckless and a "disgusting abomination."

After Musk then accused the US president of alleged ties to child sex offender Jeffrey Epstein, the news conference ended with Trump threatening to revoke Musk's government contracts, which could cost his business empire billions of dollars.

Over the next few hours, the row spilled over to social media, where both men repeated their White House remarks, prompting the SpaceX owner to announce an immediate decommissioning of its Dragon spacecraft, before appearing to back down.

How did markets react to the Trump-Musk fallout?

Tesla stock lost about $150 billion in market value on Thursday — the largest single-day decline in its history. The stock closed down over 14%.

However, news outlet Politico reported Friday that the two men were scheduled to speak later in the day in the hope of defusing the situation, which caused a sharp reversal in the stock's fortunes. Tesla stock was up 5% in pre-market trade.

However, a White House official said later Friday that Trump had no plans for any call, adding that he may get rid of his Tesla bought in March in a show of support against Musk in the face of anti-Tesla protests.

Tesla shares have been on a wild rollercoaster ride this year after a strong performance around the US election. Having peaked at $428 in January, shares in the electric vehiclemaker plummeted by almost half in March as investors reacted negatively to Musk's involvement in the Trump administration.

Tesla stock then rallied when Trump paused his unprecedented tariffs on the rest of the world and after US regulators eased rules on self-driving vehicles.

What's at stake for Musk's empire?

The public spat, as well as Trump's budget plans, have left the fortunes of Musk's companies hanging in the balance.

Tesla, Musk's most profitable firm, could be severely impacted by Trump's plans to cut a subsidy on new electric vehicles that is worth up to $7,500 for buyers.

Despite Musk's aggressive criticism and lobbying by Tesla, Trump plans to eliminate the credit by the end of the year, seven years before it was due to expire.

News agency Bloomberg cited JP Morgan analysts as saying that the cut would reduce Tesla's full-year profit by $1.2 billion. Cuts to state-level credits could further impact the EV maker's bottom line this financial year.

It could, however, encourage EV buyers to bring forward their plans and spur demand for Tesla's vehicles in the short term.

Tesla is already being impacted by Trump's tariffs as the firm relies on Chinese parts for its Cybercab robotaxi and Semi electric truck.

However, it is unclear whether Trump can unilaterally make good on his threat to tear up federal contracts with Musk's firms like SpaceX.

Since 2000, SpaceX has received more than $22 billion in contracts from the US Defense Department and space agency NASA.

If Trump were to terminate the contracts, it would have a huge financial impact on SpaceX and disrupt the US government's space ambitions.

SpaceX's Crew Dragon is currently the only US spacecraft certified to carry crew to the International Space Station (ISS).

Any ending of Pentagon contracts involving Musk's Starlink satellite internet service would also be a lose-lose for both Musk and the government.

Starlink provides broadband services to rural areas. Terminals are also deployed on US military bases, ships, aircraft, and armored vehicles. The satellite internet service is often used for disaster response.

Edited by: Uwe Hessler