Al Root

Tesla CEO Elon Musk suggested the U.S. exit the North Atlantic Treaty Organization, or NATO.

It's yet another politically divisive issue he's weighed in on, leaving investors to learn about another thing that could impact the shares of their electric vehicle maker.

"We really should," tweeted Musk in response to a post about the U.S. exiting NATO. "Doesn't make sense for America to pay for the defense of Europe."

NATO was created in 1949 by the U.S., Canada, and several Western European nations to provide collective security against the former Soviet Union. Secondary goals of the alliance included halting a revival of "nationalist militarism in Europe through a strong North American presence on the continent, and encouraging European political integration," reads part of NATO's website.

NATO's annual budget is currently about $5 billion. The U.S. pays a little less than $800 million of that or about what the Defense Department spends in eight hours.

The issue doesn't appear as much about the NATO budget as it does about overall military spending. NATO nations are supposed to spend about 2% of GDP on national defense. NATO nations were below the 2% threshold for most of the past decade, reaching 2% in 2024, according to NATO data.

The U.S. spends almost $1 trillion a year on defense, closer to 3% of GDP. Spending in the Euro area is closer to $300 billion and almost 2% of GDP, according to Goldman Sachs.

Investors have little choice but to brush up on NATO. Musk's activities in Washington have become a risk factor for shares of their EV maker. Tesla sales in Europe and the U.S. were weak to start the year, creating the perception that Musk is alienating his core buyers: political left-leaning car buyers looking to go green. Historically, American Democrats have been more likely to buy an EV than Republicans.

"My wife is insisting that we sell the Tesla...It's the best car I've ever owned," says Arjun Divecha, director and head of emerging-markets equity at GMO. "If you live in Berkeley, California, you cannot afford to have a Tesla anymore. I'm not kidding you."

Coming into Monday trading, Tesla stock was down about 38% since the Jan. 20 inauguration, leaving shares down about 45% from their all-time closing high of almost $480 reached in mid-December.

Wedbush analyst Dan Ives wrote Thursday that investors will have to look past Musk-related issues. He rates the shares Buy and has a $550 price target for Tesla stock.

Ives was mainly discussing Musk's efforts to curb government waste at the newly created Department of Government Efficiency. Now, investors have to worry about DOGE and NATO, too.

Uncertainty about America's commitment to European defense has been moving more than just Tesla stock in 2025.

Coming into Monday trading, the market value of four of the largest U.S. defense contractors, General Dynamics, Lockheed Martin, L3Harris Technologies, and Northrop Grumman, is down about $37 billion since the Nov. 5 presidential election, according to FactSet. The value of U.K.'s BAE Systems, Germany's Rheinmetall, Italy's Leonardo, and France's Thales is up about $70 billion.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 09, 2025 13:18 ET (17:18 GMT)

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