The early results of the U.S. midterm elections are sending immediate shockwaves through the financial markets. With projections pointing toward a decisive “Blue Wave” that would hand Democrats control of both the House and the Senate, investors are quickly repricing the risks surrounding the businesses of the Republican party’s most prominent backer, Elon Musk. Shares of Tesla Inc. (TSLA) and Space Exploration Technologies Corp. (SPCX) dropped about 5% in pre-market trading, reflecting Wall Street’s anxiety over a potentially hostile regulatory environment.

The Future of the Tesla-SpaceX Merger Under a New Congress

For investors holding shares in either company, a Democratic sweep acts as a double whammy. Beyond fueling concerns over tighter regulations on artificial intelligence—a sector where both companies are heavily investing—the newly empowered Congress casts serious doubt on the viability of a mega-merger between Tesla and SpaceX.

While Congress cannot single-handedly kill a corporate merger, Democratic lawmakers could impose significant roadblocks to slow it down. “Both of these stocks have major headline risk if we get a blue sweep,” First New York’s Vikram Rai told Bloomberg. Consequently, there has been a strategic push to announce a Tesla-SpaceX deal by the first half of next year to ensure it closes while Donald Trump remains in the White House.

Deep Ties to the Trump Administration and the Price of Politics

Few CEOs are as intimately tied to President Donald Trump and the MAGA movement as Elon Musk. The world’s richest man served as a White House adviser and currently co-leads a new Defense Department initiative. Leading up to the midterms, Musk poured nearly $450 million into GOP campaigns and actively leveraged his 240 million X (formerly Twitter) followers to campaign against Democrats.

This level of political entanglement carries tangible corporate risks. SpaceX, which went public earlier this year and currently boasts a staggering $1.9 trillion market capitalization, rakes in billions through U.S. government contracts. Furthermore, access to the military version of its Starlink satellite service has become a geopolitical flashpoint, drawing intense scrutiny from lawmakers.

Looking Ahead: Fundamentals Reclaiming Control Post-Election

Despite the immediate selloff, history shows that while Musk-linked stocks are highly sensitive to political news, the reactions can be temporary. Following Trump’s re-election in 2024, Tesla’s stock surged over 90% in just over a month. However, those gains eventually unwound as Musk’s relationship with Trump experienced friction and investors grew weary of his political side quests.

“Ahead of elections, narratives and emotion are significant factors, but once they are behind us, fundamentals and reality take control,” said Mark Hackett, chief strategist at Nationwide Funds Group. And the fundamental reality remains complex: the merger is still in an exploratory phase, both Tesla and SpaceX are burning through billions of dollars in product development, and ambitious plans for robotaxis, humanoid robots, and Martian colonies remain years away from meaningfully contributing to the companies’ income statements.