Musk bet big on keeping Texas red. What happens to his business empire now?
By Chris Isidore, CNN
(CNN) — Elon Musk poured nearly half a billion dollars into the midterms to support Republican candidates, most to help Ken Paxton defeat Democrat James Talarico in the Texas Senate race.
Talarico won. But it was the other Democrat upsets in the state, for 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 scrutiny, but both candidates took direct aim at Musk and his businesses while on the campaign trail.
“It’s less about the blue wave on the Senate or House side,” said tech analyst Daniel Ives, a SpaceX and Tesla bull, about what Tuesday’s election results mean for Musk. “It’s more with the Texas governor.”
Democrat Nathan Johnson, who is replacing Paxton as Texas attorney general, said in July that, if elected, he would investigate whether SpaceX’s Starlink service was unfairly awarded grants designed to expand rural broadband. The internet service is SpaceX’s most profitable unit.
And Governor-elect Gina Hinojosa, who unseated incumbent Greg Abbott, made opposition to data centers a major plank of her campaign. She has vowed to put a moratorium on new data center construction. Both Tesla and SpaceX have banked their future success on their AI efforts.
SpaceX is planning major investments in new data centers in the next year, including the massive Colossal 3 to be built just outside of Brownsville, Texas. Unlike a lot of artificial intelligence companies, SpaceX earns a profit from selling time on its servers and cloud platforms to other AI companies. Hinojosa’s proposed moratorium would be a critical blow to its plans.
“I mean, those Texas data center plans are a key part of Musk’s ambitions,” Ives said. He said that’s why SpaceX and Tesla shares fell Wednesday, both dropping more than 3%, even as many other tech stocks rose.
Musk, the world’s richest person with a net worth estimated at about $898 billion, likely won’t sweat the money he lost backing Republicans, or even Wednesday’s decline in value for his shares.
The bigger issue for Musk is an increased level of scrutiny, which he noted on his social media platform, X, on Wednesday.
“Data centers in space looking pretty appealing right now,” Musk wrote, referencing his ultimate ambitions.
Experts say lifting and operating data centers in outer space still face many hurdles. But even if it was possible, SpaceX may have to take off from a spaceport in Louisiana if Texas moves to limit launches.
SpaceX has faced public criticism for the operation of its spaceport, “Starbase,” on Texas’ Gulf Coast. Some residents near the launch facilities have long expressed worries about disruptive sonic booms — which can be as loud as gunshots and register as small earthquakes — and collectively filed a lawsuit this year.
SpaceX did not respond to a request for comment about the lawsuit. But Musk has previously downplayed sonic booms, saying in a 2022 post on X that “storms and hurricanes that are far more serious than Starship launches.”
Those resident complaints, however, could find a more sympathetic ear from Hinojosa compared to Abbott. (Hinojosa’s campaign did not respond to questions from CNN about her position on the spaceport.)
Tesla also has a big operation in Texas, and its driverless “robotaxis” 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, self-driving or otherwise, are allowed on their roads.
“It would it would be a big blow if robotaxis faced more regulation,” Ives said.
Tesla hasn’t listed profits or losses for its robotaxi service. But Musk has made it clear that Tesla’s future is selling rides in its robotaxis, not car sales. And a large part of Tesla’s evaluation is the expectation that its robotaxi service will eventually operate nationwide, Ives said.
Ives also says Hinojosa’s threat to the AI industry goes beyond just SpaceX. Texas is a key to US AI development. The state has the most planned data centers in the country, according to research firm Cleanview, and is second only to Virginia for the number open or under construction.
“Hinojosa is a known anti-data center politician and negative on the AI buildout which makes worries around the future of the datacenter buildout in Texas a real issue for tech investors,” Ives said in a note to investors Wednesday. “SpaceX stock will be under pressure.”
The-CNN-Wire
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