Elon Musk, the CEO of Tesla, has proposed that the United States withdraw from the North Atlantic Treaty Organization, commonly known as NATO.
This suggestion has sparked yet another polarizing debate, prompting investors to consider another potential factor that could influence the stock prices of their electric vehicle company.
“We really should,” Musk tweeted in reaction to a discussion about the U.S. leaving NATO. “It doesn’t make sense for America to finance Europe’s defense.”
Established in 1949 by the U.S., Canada, and several Western European countries, NATO was designed to ensure collective security against the former Soviet Union. Additionally, the alliance aimed to prevent the resurgence of “nationalist militarism in Europe through a robust North American presence on the continent, and to promote European political integration,” according to NATO’s official website.
Currently, NATO’s annual budget stands at approximately $5 billion, with the U.S. contributing just under $800 million—an amount equivalent to what the Defense Department expends in eight hours.
This debate seems to focus less on NATO’s budget and more on overall military expenditure. NATO member states are expected to allocate around 2% of their GDP on national defense, but many nations have consistently failed to meet this target over the past decade, only reaching the 2% mark in 2024, as reported by NATO.
The United States allocates nearly $1 trillion annually for defense, approximately 3% of its GDP, whereas military spending in the Eurozone is around $300 billion, close to 2% of their GDP, as noted by Goldman Sachs.
Investors are left with little option but to familiarize themselves with NATO. Musk’s actions in Washington have emerged as a risk element affecting shares of their EV manufacturer. Tesla’s sales in both Europe and the U.S. started the year sluggishly, leading to concerns that Musk is alienating a crucial segment of his customer base: left-leaning consumers keen on green technology. Historically, Democrats in America have displayed a greater tendency to purchase electric vehicles compared to Republicans.
“My wife insists that we must sell the Tesla…It is the finest car I’ve ever owned,” says Arjun Divecha, director and head of emerging-markets equity at GMO. “If you reside in Berkeley, California, you can no longer afford to own a Tesla. I’m serious.”
As the market opened on Monday, Tesla’s stock had dwindled by about 38% since January 20, leaving it roughly 45% below its peak closing price of nearly $480 recorded in mid-December.
Wedbush analyst Dan Ives stated on Thursday that investors will have to navigate beyond Musk-related challenges. He maintains a Buy rating on the shares, with a price target set at $550 for Tesla stock.
Ives primarily addressed Musk’s attempts to eliminate governmental waste at the newly established Department of Government Efficiency. Now, investors have additional concerns surrounding DOGE and NATO.
Doubts regarding the U.S.’s dedication to European defense have been affecting more than just Tesla’s stock as we head into 2025.
As of Monday’s trading session, the aggregate market capitalization of four major U.S. defense contractors—General Dynamics, Lockheed Martin, L3Harris Technologies, and Northrop Grumman—has decreased by about $37 billion since the November 5 presidential election, as per FactSet. In contrast, the values of the U.K.’s BAE Systems, Germany’s Rheinmetall, Italy’s Leonardo, and France’s Thales have risen by approximately $70 billion.
Contact Al Root at allen.root@dowjones.com
