WASHINGTON (Reuters) -U.S. President Donald Trump on Tuesday threatened to cut off the billions of dollars in subsidies that Elon Musk's companies receive from the federal government, in an escalation of the war of words between the president and the world's richest man, one-time allies who have since fallen out.

The feud reignited on Monday when Musk, who spent hundreds of millions on Trump's re-election, renewed his criticism of Trump's tax-cut and spending bill, which would eliminate subsidies for electric vehicle purchases that have benefited Tesla, the leading U.S. EV maker. 

"He's upset that he's losing his EV mandate and ... he's very upset about things but he can lose a lot more than that," Trump told reporters at the White House on Tuesday.

Musk's businesses, especially Tesla and SpaceX, are highly dependent on an array of federal contracts, policies, subsidies and credits that have provided the companies tens of billions of dollars in revenue over the years. Some of these benefits for Tesla, including consumer tax credits for EV purchases, were already on the chopping block in Trump's tax bill. Tesla shares dropped 4% in early trading Tuesday.

The Tesla CEO renewed threats to start a new political party and spend money to unseat lawmakers who support the tax bill, despite campaigning on limiting government spending. As of Tuesday, the bill was still in the midst of a drawn-out Senate amendment process. 

It is unclear how much sway Musk has over Congress or what effect his opinions might have on the bill's passage. But Republicans have expressed concern that his on-again, off-again feud with Trump could hurt their chances to protect their majority in the 2026 midterm congressional elections.

Treasury Secretary Scott Bessent pushed back on Musk's criticism that the bill would balloon the deficit, saying, "I'll take care of" the country's finances.

Musk spearheaded the Department of Government Efficiency (DOGE), aimed at cutting government spending, before he pulled back his involvement in late May. Trump on Truth Social on Tuesday suggested Musk might receive more subsidies "than any human being in history, by far," adding: "No more Rocket launches, Satellites, or Electric Car Production, and our Country would save a FORTUNE." 

Trump later doubled down, telling reporters with a smile, "DOGE is the monster that might have to go back and eat Elon."

In response to Trump's threats, Musk said on his own social media platform X, "I am literally saying CUT IT ALL. Now." He later added that he could escalate the exchange with Trump but said, "I will refrain for now."

CHALLENGES TO TESLA

The feud could create new challenges for Musk's business empire, particularly as the electric automaker - his primary source of wealth - bets heavily on the success of its robotaxi program currently being tested in Austin, Texas. The speed of Tesla's robotaxi expansion depends heavily on state and federal regulation of self-driving vehicles. 

Analysts expect another rough quarter when the EV maker reports second-quarter delivery figures on Wednesday. Sales continued to slide in several major European markets, data showed Tuesday, as Musk's embrace of hard-right politics has alienated potential buyers in several markets worldwide.

The U.S. Transportation Department regulates vehicle design and will play a key role in deciding if Tesla can mass-produce robotaxis without pedals and steering wheels, while Musk's rocket firm SpaceX has about $22 billion in federal contracts. Tesla also gets regulatory credits for selling electric vehicles; the company reported $2.8 billion in those credits in the 2024 fiscal year, which could be cut sharply under the tax bill.

Trump had in early June threatened to cut Musk's government contracts when their relationship erupted into an all-out social media brawl over the tax-cut bill, which non-partisan analysts estimate would add about $3 trillion to the U.S. debt. 

The subsequent selloff in Tesla shares erased $150 billion in market value, as investors feared a tougher regulatory road for the self-driving robotaxi that underpin much of the company's valuation. 

The stock recovered after Musk walked back some of his comments. 

The truce was short-lived, however, with Musk on Saturday calling the tax bill "utterly insane and destructive" in a post on X. He said lawmakers who voted for the bill after campaigning on cutting spending bill "will lose their primary next year if it is the last thing I do on this Earth."

Musk has argued that the legislation would greatly increase the national debt and erase the savings he says he achieved through DOGE. 

"Musk cannot stop himself. He is getting on Trump's bad side again. Tesla international sales have fallen significantly and if he loses U.S. subsidies, U.S. sales are likely to fall as well," said Dennis Dick, Stock Trader Network chief strategist, who holds Tesla shares.

"Musk needs Trump, Trump does not need Musk," he said.

Asked if he was going to deport Musk, a naturalized U.S. citizen, Trump told reporters as he left the White House on Tuesday: "I don't know. We'll have to take a look."