Tesla shares fell about 5% at Wednesday’s open after Democrats won control of both houses of Congress and took the governor’s office and a Senate seat in Texas, where Tesla is headquartered. SpaceX, also based in Texas, fell by a similar amount while the wider market rallied.

Elon Musk spent at least $474 million on the midterms, about $224 million of it on Texas races, particularly Republican Ken Paxton’s losing Senate campaign against Democrat James Talarico. Texas also elected Democrat Gina Hinojosa governor over Greg Abbott. She campaigned on a moratorium on new data centers.

Tesla runs both of its AI training clusters in Texas. Abbott had already ordered state regulators in September to stop issuing data center permits.

Tesla Targets 400 Megawatts Of AI Training Compute By Year-End

Tesla’s 400-megawatt year-end target sits about 175 megawatts above its two Texas clusters. The third-quarter update lists Cortex 1 at more than 105 megawatts and Cortex 2 at more than 120 megawatts, both in production, and sets the 400-megawatt goal for the end of 2026.

The Q3 update, published October 21, doesn’t say where the added capacity is being built, and it never mentions the Texas permit halt. Tesla says the compute supports development of its vehicle and humanoid robot autonomy software, the software behind the Cybercabs it put into its Austin Robotaxi fleet on September 3. It also says rising data center demand will keep driving demand for its energy storage products, which Megafactory Texas began building in the quarter.

Abbott Halted Data Center Permits Before Hinojosa Won

Abbott’s September 21 order told the Texas Commission on Environmental Quality to halt all permits sought by data centers. The halt lasts until the grid operator, ERCOT, completes its audit. No state agency may move forward with data center approvals until then, the governor’s office said.

The order does not say whether it covers expansions at existing sites, and it sets no end date beyond the audit. Abbott also said he would work with the Legislature next session to end financial incentives for data centers.

Hinojosa’s version ties the pause to new law rather than an audit. She wants a moratorium on new data centers, an end to industry tax breaks and rules making developers cover their full electricity costs, CNBC reported. In July she asked Abbott for “an emergency executive order putting a moratorium on data centers” until the legislature meets, her campaign said. That release doesn’t name Tesla. She takes office on January 19, a week after the Legislature convenes.

Gary Black, managing partner of the Future Fund, wrote on X that Texas’s “status as a data center hub may now be over,” the Times reported.

Most Of Musk’s Midterm Money Went To Losing Races

Musk’s at least $474 million was the most any donor has spent in a U.S. election cycle, apart from self-funding candidates, The New York Times reported. His America PAC put nearly $87 million into 44 federal races, and 93% of it went to races Republicans lost, CNBC found.

In his victory speech, Talarico said “no billionaire or trillionaire can buy our elections,” without naming Musk.

The selloff started before the bell, when Musk’s two public companies were down as much as 6% and 7%. The drops at the open took more than $100 billion off their combined market value, Business Insider reported. Later in the session Tesla traded down more than 2% and SpaceX about 3%, according to the Times, while Meta, Microsoft and Google rose.

Musk posted on X that “Data centers in space looking pretty appealing right now,” and added a joke about his “election-interfering space lasers.” His Tuesday post telling followers to “vote red today!” could no longer be found on his account on Wednesday, according to the Times.

A Democratic Congress Arrives While Tesla Weighs A SpaceX Merger

Tesla and SpaceX disclosed in October that each has a special board committee studying a closer tie-up. A merger is one option. Democrats, some of whom have signaled they intend to investigate Musk and his companies, take control of both chambers of Congress in January, the Times reported.

Sen. Edward Markey, a Massachusetts Democrat, posted on X on Tuesday night that Democrats will need to “plant new forests for all of the subpoenas we’ll be printing,” a post the Times said was about potential hearings for technology executives. Dan Ives, a partner at Yorkville Ives & Co., wrote in a note Wednesday that Democratic control, especially of the Senate, will create major hurdles for AI and tech legislation over the next two years.

Tesla already owns part of SpaceX, a stake it valued at $2.87 billion on September 30, as I reported when Tesla cut its 2026 capex forecast to about $20 billion. Shareholders vote at the December 3 annual meeting, and the ballot carries no merger proposal.

EVXL’s Take

My read is that Tesla shareholders are paying for Musk’s politics a second time. The first bill came through the showroom: the Yale economists EVXL covered last October estimated Tesla would have sold 1 million to 1.26 million more vehicles in the U.S. from October 2022 through April 2025 without what they called the Musk partisan effect.

The second bill arrived Wednesday, and I think Texas data centers are the smaller part of it. Abbott had frozen data center permits before anyone voted, so Hinojosa changes the terms of a halt that already existed.

The bigger exposure is in Washington. Tesla’s special committee will weigh a deal with SpaceX while a Democratic Congress, with members already talking about subpoenas, decides how hard to look at Musk’s companies. Shareholders who never signed up for Musk’s politics will have that merger decided in a much harsher room than the one they had on Monday.

Sources: The New York Times, CNBC, Business Insider, Tesla Q3 2026 Update, Office of the Texas Governor, Gina Hinojosa campaign

EVXL uses automated tools to support research and source retrieval. All reporting and editorial perspectives are by Haye Kesteloo.