Tesla shares fell about 5% and SpaceX stock dropped 6.9% in premarket trading on Wednesday, after Elon Musk's midterm spending spree failed to deliver Republican wins and Democrats took control of Congress. Both stocks recovered part of the loss by mid-morning: Tesla was down about 2.5% and SpaceX off about 1%.

The decline cut against a broad market rally. The Dow Jones Industrial Average rose 2%, or 1,045 points, after the opening bell. The S&P 500 gained 1.25%, and the Nasdaq Composite advanced 1.3%.

Investors are weighing two specific risks, according to Bloomberg: tighter regulation of artificial intelligence and added uncertainty over a potential Tesla-SpaceX merger.

How much did Musk spend, and what did he get?

Musk, who runs both companies, outspent every other donor in the 2026 midterms. He contributed more than $445 million, according to MarketWatch. CNBC put his total spending at least $474 million, including $224 million in Texas.

That Texas bet failed decisively. Republican Senate nominee Ken Paxton and Governor Greg Abbott both lost. Democrat James Talarico won the Senate seat — the same candidate Musk had directed a large share of his donations against.

His America PAC spread close to $87 million across 44 federal contests. As of Wednesday morning, its Republican picks had lost 29 races and won only three, with 12 contests still uncalled. About 93% of the PAC's spending went to races Republicans lost.

What does the Texas result change for the companies?

Texas matters to both balance sheets. Tesla's biggest American car plant sits just outside Austin, and SpaceX launches rockets from Starbase, its site in South Texas.

AJ Bell investment director Russ Mould said in a note that the stocks faced pressure "primarily because Texas has a new Democrat senator and that state is home to the HQs and a lot of the facilities of both Tesla and SpaceX," according to Bloomberg.

The new governor adds another variable. Democratic Governor-elect Gina Hinojosa campaigned against corporate subsidies and has urged a halt to the construction of new data centers. Republicans still hold the majority in the Legislature, which constrains how much she can reshape state policy.

Could Congress act against Musk directly?

A Democratic Congress could open inquiries into Musk's government contracts, his earlier role running the Department of Government Efficiency, and the ties his companies have to Washington. President Donald Trump continues to oversee the executive agencies and keeps the power to veto legislation, which limits what any inquiry can force.

The merger question is the one traders watched most closely. Vikram Rai of First New York told Bloomberg last week that both stocks carry major headline risk in a Democratic sweep. He said Democrats could slow a merger, though Congress lacks the power to end one by itself.

For holders of both stocks, Wednesday's move repriced political risk that had been mostly ignored. The market reaction — Tesla recovering to a 2.5% loss while the Dow rose 2% — suggests investors treat the Texas exposure as real but manageable, and the merger timeline as the larger open question.