Exchange-traded funds with significant exposure to Tesla Inc. (NASDAQ:TSLA) could be in for a rough ride, not due to production setbacks or margin squeeze, but thanks to a new set of political fireworks between Elon Musk and Donald Trump.

On Tuesday, TSLA stock plummeted as President Trump publicly criticized Musk, stating he was “disappointed” with the Tesla CEO’s “furious bashing” of the tax legislation. The remark came on the heels of reports that Musk, in behind-the-scenes talks, showed intense opposition to the bill’s incentives for clean energy, which he feels benefit union-supported automakers at Tesla’s expense. On Thursday, the Tesla stock is down a sharp 15%.

While Musk has never hesitated to court controversy, the new spat adds one more level of risk for investors, especially those who are exposed through ETFs that hold Tesla as a strategic holding.

Also Read: ‘Whatever You Think Of Elon Musk, You Must Support His Fight Against The Big Beautiful Bill,’ Says ‘Black Swan’ Author Nassim Taleb

ETFs In The Crosshairs

Tesla is still a major contributor to a number of actively and passively managed ETFs, particularly those that concentrate on innovation, EVs, and clean energy. Some of the most exposed:

ARK Innovation ETF (BATS:ARKK) – Tesla is the single largest holding, frequently making up 12% or more of the portfolio.

iShares Self-Driving EV and Tech ETF (NYSE:IDRV) – Tesla is frequently in the top five, but it has cut its weightage to 3.5% in the last rejig.

KraneShares Electric Vehicles and Future Mobility ETF (NYSE:KARS) – TSLA is prominent, at almost 4% weightage.

They’ve gone through volatility already with Tesla’s stock price, which fell almost 20% through the past five trading days. But political tension adds a wilder variable, one that’s difficult to price into models and more difficult to hedge in a diversified basket.

Passive Exposure, Active Headaches

For individual investors who are not monitoring every political headline, indirect exposure to these risks through ETFs can be a surprise in store.

This is the classic example of political risk spilling over into passive portfolios. When Tesla catches a cold, ARKK gets it, and when Musk gets involved in a political fight, it’s the ETF investors who will need a flu shot.

Looking Ahead

In the near term, ETF issuers won’t rebalance on political noise alone. But ongoing stress about Tesla’s regulatory and political positioning might impact flows.

For investors in ETFs, the takeaway can be less about Musk himself and more learning what’s driving their portfolios from beneath the hood. Because sometimes, earnings or interest rates aren’t driving your fund, it’s Elon Musk, a tweet from some social media account, and a news headline with Donald Trump’s name on it.

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