Tesla Inc. (NASDAQ:TSLA) shares took a beating on Wednesday after several analysts questioned whether customer demand for its two electric vehicles is waning as the company begins producing a cheaper sedan.
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The Silicon Valley auto maker's shares fell nearly 5% in midday trading to $335.74 -- the lowest point in more than a month -- after rising about 69% this year through last week on enthusiasm for the coming Model 3 sedan, which is central to Tesla's plan to sharply increase total sales.
Tesla on Monday reported sales of its Model S cars and Model X sport-utility vehicles were lower than analysts expected because of a supply issue with battery packs, raising new fears the company will have trouble meeting ambitious production targets for the Model 3.
Goldman Sachs analyst David Tamberrino reiterated a sell rating on Tesla's stock, writing in an note to clients that demand for the Model S and Model X vehicles appears to be plateauing after production exceeded second-quarter sales. "We see potential for downside as the Model 3 launch curve undershoots the company's production targets," he said.
Toni Sacconaghi, an analyst for Sanford C. Bernstein, said Tesla's sales report "raised more questions than answers" and asked why investors didn't find out sooner about the "severe production shortfall" of battery packs, which Tesla said caused production to average about 40% below demand.
"If production was so poor in April and May for its 100 kwh battery, why didn't Tesla executives discuss the issue on the company's Q1 earnings call on May 3?" Mr. Sacconaghi said in a note to investors.
Tesla spokeswoman Sarah O'Brien didn't respond to a request for comment.
Tesla said it sold about 22,000 Model S and Model X vehicles in the second-quarter, up about 53% but short of the average estimate of 23,655 deliveries, according to four analysts surveyed by The Wall Street Journal. Tesla finished the first half with sales of 47,100 vehicles, just meeting its goal of delivering 47,000 to 50,000 vehicles.
"Model S is getting a bit long in the tooth," said Dave Sullivan, an analyst for automotive consultancy AutoPacific Inc.
The discouraging analyst reports came Thursday as Volvo Cars, the auto maker owned by Chinese automotive group Geely Holding Group, said all new models starting in 2019 would be either fully electric or a hybrid. The move means Volvo would become the first major auto maker to abandon the conventional car engine, in a challenge to Tesla.
Tesla made about 84,000 fully electric cars last year, and Chief Executive Officer Elon Musk is depending upon the Model 3, which will sell for about $35,000, to help bolster his annual production to 500,000 next year. Part of that plan seemed to depend upon making a combined 100,000 Model S and Model X vehicles.
The Model S, which typically sells for $100,000, first went into production in the third quarter of 2012 and has helped fuel quarter after quarter of sales growth since. Mr. Musk has tried to keep that model fresh by making some tweaks, such as offering better batteries and software updates.
Model X went on sale in 2015 and was plagued by production problems, which Tesla addressed in its press release on Monday. "It should also be noted that production quality and field reliability of the Model X, for which Tesla has been fairly criticized, have improved dramatically," the company said. "It is now rare for a newly produced Model X to have initial quality problems."
J.D. Power, the arbitrator of initial quality, published its annual study last month but didn't include any Tesla vehicles because of a small sample size.