Now that Tesla believers like Ives were so unequivocal in condemning the company after its discouraging report, its many short-sellers and naysayers are feeling more vindicated than ever about their claims that the company was overpriced to begin with. 

“This was really the beginning of the end of the Tesla bubble, which probably, arguably was the biggest stock market bubble in modern history,” Per Lekander, managing partner at London-based investment firm Clean Energy Transition, told CNBC. 

Tesla’s share price has fallen 58% since its peak in November 2021—and sales are down. In the last quarter, Tesla reported an 8.5% drop in vehicle deliveries from last year. Wall Street set a relatively low bar—457,000—but Tesla was only able to deliver 386,810 vehicles in total. There were even whispers that it would underperform those mediocre expectations, but not to this degree. The most bearish of analysts had predicted deliveries to be around 414,000 for the quarter. 

Those numbers are a stark reversal from Tesla’s growth trajectory over the last few years, and they might only get worse from here given Tesla’s business model, according to Lekander. For years, Tesla spent heavily to build the necessary manufacturing capacity to capture the demand for EVs it felt was going unmet. But with vehicle deliveries now falling, that decision looks riskier than ever. 

“I actually think the company could go bust,” Lekander said.

This is the first quarter that Tesla had annual declines since 2020, when the pandemic disrupted factory operations. Since then, Tesla’s top-line growth has been gangbusters, seemingly proving the general consumer was ready for EVs and that Tesla’s unorthodox production methods had paid off. In 2023, it ended the year with $96 billion in revenue, a 207% increase from 2020. That level of sustained revenue growth had been factored into Tesla’s share price, pushing it higher and higher—not least because in early 2021, Tesla told investors it expected to “achieve 50% average annual growth in vehicle deliveries.”

But now that sales numbers have not just stumbled, but actually reversed, the logic underpinning that investment thesis is evaporating. To make matters worse, Lekander says, Tesla’s vertically integrated business model is only suitable for a company that expects rampant growth. “That’s a brilliant model when you grow because you have negative working capital so you actually get paid for growing and you capture all the margin,” he told CNBC. 

Lekander is referring to the idea that a company growing as fast as Tesla was—the past tense is critical here—can use all of the cash it makes from selling its cars to continuously fund expansion. As long as sales keep growing, a company has the cash on hand to keep investing in things like new factories or product upgrades. However, once sales falter, a company is stuck having to pay off the liabilities it incurred to fund those expenditures with a shrinking amount of cash. In essence, it now finds itself with growing debts and shrinking revenues: a dangerous situation for any company, especially one in as competitive a market as EVs.  

“The problem is when you go in the reverse and sales go down, you have all the fixed costs which you have to spread on a smaller volume, and you have the fact that you have negative working capital unwinding,” Lekander said. 

Tesla, under Musk’s direction, built itself into a car company with extraordinary levels of vertical integration. The company invested not just in building the cars themselves, but also in charger networks, and in efforts to produce EV batteries in-house. In theory, doing so should create a manufacturing process that allows for faster innovation because Tesla would be less reliant on other suppliers.  

In addition to manufacturing the cars themselves, Tesla also decided from its earliest days to develop its own software programs. The hope was that in the future, those programs would be used to power its self-driving technology. In fact, Musk once memorably called Tesla a software company. “Tesla is as much a software company as it is a hardware company, both in car and in factory,” he posted on Twitter, now X, in February 2022. ”This is not widely understood.”

In order for Tesla’s strategy of integrating vertically and operating with negative working capital (meaning its liabilities exceed its assets), it has to know that demand for its products is there, even if its own supply isn’t. For a long time, that was the case with Tesla. Its products attracted a loyal following, in large part because they were hailed as the first “cool” EV—Tesla’s Model S didn’t look dorky, and had the acceleration of a sports car. 

Now, however, Lekander questions whether that demand is even there—attributing the past quarter’s lackluster numbers not to the production problems Tesla cited, but to declining demand for its products. 

“How does record-high inventories go together with a production problem?” Lekandar asked rhetorically. “This is a demand problem.”  

In an analyst note released earlier this week, UBS reached a similar conclusion. “We believe demand is slowing,” analyst Joseph Spak wrote. 

Much of that demand is slowing because other EVs are entering the market, making it far more competitive. In particular, several Chinese companies are making cheaper models that have eaten away at Tesla’s business in the world’s second-largest economy. There’s also the problem that many mainstream car buyers remain lukewarm on EVs. This problem has been magnified by the fact that most EV early adopters already own an electric car, and don’t need a new one. 

In an effort to juice demand, Tesla is leaning heavily on its self-driving capabilities. While the technology has yet to fully pan out, that hasn’t stopped Musk from mandating new customers get a demo of the updated self-driving car software. Tesla is also offering one month free of its driver-assist technology that is otherwise priced at $199 a month.