SpaceX and Tesla 'need to find the path forward with Texas' on the back of midterm 'Blue Wave'

Tesla ( TSLA ) and SpaceX ( SPCX ) stock fell on Wednesday after Democrats took control of both houses of Congress in a "Blue Wave" that flipped Texas, home to both companies, with potential implications for CEO Elon Musk.

Musk spent $224 million backing Texas Republicans, including $158 million in September alone, per The New York Times , part of at least $446 million he gave to Republican candidates and groups before the vote. Democrat Gina Hinojosa unseated Gov. Greg Abbott to become the first Democratic governor of Texas since 1990, and Democrat James Talarico beat Republican Ken Paxton for the Senate seat.

Tesla and SpaceX both dropped by over 2% despite the broad market rally, which includes Big Tech.

"Both of these stocks have major headline risk if we get a blue sweep," Vikram Rai of FirstNew York told Bloomberg ahead of the election.

Tesla's Austin gigafactory, its robotaxi service in multiple Texas cities, and SpaceX's Starbase launch site all sit under a Democratic governor. SpaceX moved its headquarters from California to Texas in 2024.

In Washington, a Democratic Congress could bring added scrutiny of Tesla's autonomous driving operations and SpaceX's government and national security contracts.

Hinojosa has also pledged a moratorium on new data center construction in the state, a move that threatens the AI buildout underpinning both stocks.

Then there's the merger. Reports suggest a push to announce a Tesla-SpaceX deal by the first half of 2027 so it can close while President Trump is still in office, though talks remain exploratory. Rai said Democrats can't block a deal on their own but could slow it down.

"The bigger thing is the rumored merger, right? So if Tesla and SpaceX now potentially can't merge, and that was the plan … or kind of priced into the market. I think that that draws some volatility too," Defiance ETFs CIO Sylvia Jablonski said to Yahoo Finance.

Wedbush's Dan Ives, a longtime bull on both companies, wrote that Musk "needs to find the path forward with Texas now with a Democratic win on both the Senate and Governor race."

Separately, SpaceX is pushing forward with its mobile ambitions, inking a deal with Qualcomm to secure 5G chips for a terrestrial network. Though bullish on SpaceX, any moves in the telecom space also face regulatory scrutiny.

Pras Subramanian is the lead mobility reporter for Yahoo Finance. You can follow him on X and on Instagram .