Wall Street's love affair with Tesla is over

CNN/Stylemagazine.com Newswire | 5/22/2019, 2:05 p.m.

By Chris Isidore, CNN Business

(CNN) -- Tesla was once the darling of Wall Street. Not anymore.

The automaker's stock has plunged nearly 40% since the start of 2019, erasing most of the gains it made over the past several years. This week, Tesla shares fell below the $200 mark for the first time since 2016.

The outlook isn't nearly as bright for a company that once was had faster sales growth than any other auto company in the industry's history.

But Tesla recently posted its biggest drop in sales ever. It's getting squeezed by rivals in the electric car market who are all competing for customers. And the company has been forced to close stores and raise prices as it struggles to return to profitability.

To top it off, Tesla is expected to burn through a huge amount of cash in the coming year and it prepares for an international expansion that poses challenges of its own, along with the creation of a vehicle that could be its most important yet, the lower-cost Model Y SUV — all while preparing for looming debt payments.

"The clouds are getting darker for Musk & Co.," wrote Daniel Ives at Wedbush Securities in a research note published Monday. "We continue to have major concerns around the trajectory of Tesla's growth prospects."

The problem with demand

One of the drivers of the latest stock slump is how Tesla is handling the softening demand for its cars. The company's auto sales slowed significantly at the start of the year.

The tax credit that Tesla offered to buyers was cut in half, contributing to the slowdown. The loss of a big chunk of that $7,500 federal tax credit — which lowered the amount people had to pay for Tesla's vehicles — makes Tesla a tougher sell for budget-conscious buyers.

The other part of the problem is that Tesla has satisfied much of the demand from fans who were willing put down a $1,000 deposit, and then wait months, if not years, for their cars to be built. The wait time for a Model 3 is now less than two weeks.

That puts Tesla in an unfamiliar position: It needs to find buyers for its cars. It was used to having more demand than it could satisfy.

Another sticking point: Although the company has become the leading luxury car brand in the United States, it has found Musk's promise of bringing cars to the masses difficult to fulfill. The Model 3 was supposed to fill that role. But Tesla has made buying the budget version of the Model 3 harder, and the much-touted $35,000 sticker price has been creeping higher.

Tesla also isn't selling in a vacuum. For much of its history, Tesla didn't have much competition in the electric vehicle market aside from General Motors and Nissan, which manufactured such cars for a couple of years.

But now Honda, Hyundai, Kia, Volkswagen, BMW and Jaguar all offer purely electric vehicles for sale in the United States. Other luxury brands such Audi, Porsche and Mercedes are getting close as well. So even with growing demand for electric cars, Tesla is facing a much more competitive landscape.