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Tesla Shares Drop on News of Production Cuts for Model S and Model X Crossovers

Tesla is reducing production of Model S sedans and Model X crossovers, adding to concerns about demand for the electric-car maker’s higher-priced and more profitable vehicles. The shares dropped on the news.

Tesla has set substantially lower daily production targets for the Model S and Model X, according to current and dismissed employees who asked not to be identified discussing plans that aren’t public.

A (TSLA) Tesla spokeswoman issued a statement confirming that the company had reduced production hours for the Model S and Model X. The decision was linked to Chief Executive Officer Elon Musk’s pronouncement earlier this month that the company would stop accepting orders for entry-level versions of the Model S and Model X starting Jan. 14. There was at least a $15,000 difference between the 75D and longer-range 100D editions of the models at the time of Musk’s tweeted announcement.

“We recently announced that we are no longer taking orders for the 75 kWh version of Model S and X in order to streamline production and provide even more differentiation with Model 3,” Tesla said in an emailed statement in response to an inquiry from Bloomberg News. “As a result of this change and because of improving efficiencies in our production lines, we have reduced Model S and X production hours accordingly.”

Representatives for Tesla declined to comment beyond the statement, including about whether actual production rates of the Model S and Model X have been reduced. The company built 61,394 Model 3 sedans in the fourth quarter, and a total of 25,161 Model S and Model Xs.

The dialing back follows Musk’s announcement last week that Tesla would cut 7% of its workforce. The CEO said the dismissals are necessary because the company still makes vehicles that are too expensive for most people and its profitability will come under pressure as deliveries of lower-priced Model 3 sedans ramp up.

Tesla shares dropped 4.3% at 3:16 p.m. in New York trading after earlier sinking as much as 5.8% to $281.69, the lowest intraday price since Oct. 23.

Earlier this month, Tesla cut prices on all models by $2,000 to partially offset a reduction in the federal tax credit for its vehicles. Starting Jan. 1, the U.S. incentive dropped by half to $3,750, and it will drop further to $1,875 from July 1 through the end of the year.