Elon Musk invested nearly half a billion dollars in the midterms to support Republican candidates, most of it to help Ken Paxton defeat Democrat James Talarico in the Texas Senate race.
Talarico won. But it’s the other Democratic upheavals in the state, over the governor and attorney general, that could cause bigger problems for Musk and his Texas-based companies: rocket and AI company SpaceX and electric car maker Tesla.
Not only will he likely face greater regulatory oversight, but both candidates have taken direct aim at Musk and his companies during their election campaign.
“It’s less about the blue wave on the Senate side or the House side,” tech analyst Daniel Ives, a SpaceX and Tesla bull, said of what Tuesday’s election results mean. for Musk. “It’s more with the governor of Texas.”
Democrat Nathan Johnson, who replaces Paxton as Texas attorney general, said in July that, if elected, he would investigate whether SpaceX’s Starlink service unfairly received subsidies intended to expand rural broadband. The Internet service is SpaceX’s most profitable unit.
And Gov.-elect Gina Hinojosa, who unseated incumbent Greg Abbott, has made opposition to data centers a major plank of her campaign. She pledged to impose a moratorium on the construction of new data centers. Both Tesla and SpaceX have staked their future success on their AI efforts.
SpaceX is planning major investments in new data centers over the next year, including the massive Colossal 3 that will be built just outside Brownsville, Texas. Unlike many artificial intelligence companies, SpaceX makes profits by selling time on its servers and cloud platforms to other AI companies. Hinojosa’s proposed moratorium would deal a critical blow to his plans.
“I mean, these data center projects in Texas are a key part of Musk’s ambitions,” Ives said. He said that’s why shares of SpaceX and Tesla fell on Wednesday, both down more than 3%, even as many other tech stocks rose.
Musk, the world’s richest person with an estimated net worth of around $898 billion, probably won’t worry about the money he lost supporting the Republicans, or even the drop in his stock value on Wednesday.
The biggest issue for Musk is the increased level of scrutiny, which he noted on his X social media platform on Wednesday.
“Data centers in space look pretty attractive right now,” Musk wrote, referring to his ultimate ambitions.
Experts say lifting and operating data centers in space still faces many obstacles. But even if that were possible, SpaceX may have to take off from a spaceport in Louisiana if Texas decides to limit launches.
SpaceX has faced public criticism for operating its spaceport, “Starbase,” on the Texas Gulf Coast. Some residents near launch facilities have long expressed concerns about disruptive sonic booms — which can be as loud as gunshots and register like small earthquakes — and collectively filed a lawsuit this year.
SpaceX did not respond to a request for comment on the lawsuit. But Musk has previously downplayed sonic booms, saying in a 2022 article on X that “storms and hurricanes are far more serious than Starship launches.”
These complaints from residents, however, might find a more sympathetic ear from Hinojosa than from Abbott. (Hinojosa’s campaign did not respond to questions from CNN about his position on the spaceport.)
Tesla also has a large business in Texas, and its driverless “robot taxis” only operate in four cities in Texas and three cities in Florida. For comparison, rival Waymo, a unit of Alphabet, operates in 15 cities across the country.
Local governments decide which vehicles, autonomous or not, are allowed to operate on their roads.
“It would be a big blow if robotaxis faced more regulation,” Ives said.
Tesla has not listed profits or losses from its robotaxi service. But Musk has made it clear that Tesla’s future lies in selling rides in its robo-taxis, not selling cars. And much of Tesla’s valuation is based on the hope that its robotaxi service will eventually operate nationwide, Ives said.
Ives also says the threat Hinojosa poses to the AI industry goes beyond SpaceX. Texas is a key to the development of AI in the United States. The state has the most planned data centers in the country, according to research firm Cleanview, and is second only to Virginia in the number open or under construction.
“Hinojosa is a known anti-data center politician and negative toward AI development, making concerns about the future of data center development in Texas a real issue for tech investors,” Ives said in a note to investors Wednesday. “SpaceX shares will be under pressure.”
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