SpaceX, Tesla extend losses as midterm results cloud data center, merger outlook

Shares of Tesla and SpaceX experienced a decline on Thursday, further extending their losses from the previous trading session. This downturn comes as concerns arise that Democratic victories in the US midterm elections could hinder data center construction. These companies are based in Texas, a state where Democratic candidates secured significant wins in the recent midterms, including races for Senate, governor, and attorney general.

Elon Musk, the CEO of both SpaceX and Tesla, had previously heavily invested in Republican candidates during the midterms. The recent political shift may lead to increased scrutiny of Musk's businesses, potentially impacting their operations and performance. Combined, the two companies' market capitalization was expected to suffer a loss of over $380 billion this week, with Tesla shares falling over 11% and SpaceX shares dropping nearly 9%.

Data centers have emerged as a political issue in Texas. SpaceX has been increasingly relying on AI computing as a source of revenue, with more than half of its third-quarter sales generated from renting out computing capacity. Analysts from Goldman Sachs projected that Democratic gains at the state and local levels could result in short-term moratoriums on data center construction, potentially affecting roughly 45% of the planned expansion in US data centers.

Tesla is also connected to the data center expansion, as its energy division is promoting storage solutions to data center operators. Elon Musk announced plans for Terafab, a planned joint Tesla-SpaceX chip manufacturing complex in Texas, in October. The estimated cost of Terafab is up to $119 billion. However, the midterm results may complicate the potential merger of SpaceX and Tesla, according to analysts.

Dan Ives, a partner and senior managing director at Yorkville Ives & Co., stated that the political shift in Washington and Texas would make the regulatory landscape for the merger much more challenging in 2027.