Interest in electric vehicle powerhouse Tesla may be short-circuiting where it matters most.
The number of registrations for the automaker’s EVs recently dropped nationwide, even in one of the electric carmaker’s biggest markets: California. A comparison of Tesla models registered in the Golden State in April 2016 versus April 2017 showed a 24% drop, from 2,867 to 2,177, according to an IHS Markit Report.
Nationally, Tesla registrations went from 4,334 to 3,911—a nearly 10% decline. This is unfamiliar territory for the automobile manufacturer, whose early years saw rapid growth.
Making these numbers even more surprising was the company’s recent valuation. In May, Tesla was regarded as America’s most valuable carmaker, with a market value of $51 billion—even more than GM and Ford. However, Chief Executive Elon Musk was uneasy to hear this data. “I do believe this market cap is higher than we have any right to deserve,” he warned.
Regardless of Musk’s warning, investors kept investing. Shares rose 22%, and by June 23 the company’s stock was valued at $383 per share—an all-time high. This growth proved unsustainable for Tesla: since late June, the automaker’s worth has dropped 16% and is now valued at $322 per share.
Tesla’s investors worry that demand for luxury Model S is fading due to the impending launch of Model 3. The new model is a mass-market vehicle priced at $35,000—half the price of the luxury Model S. It’s a departure from Tesla’s current high-end only models.
Elon Musk raised concern that the new Model 3 could cannibalize demand for older models. “Confused” buyers thought erroneously that the new model would be an upgrade to the Model S, thus affecting Model S orders, Musk told investors.
Last week, Tesla announced that first-half deliveries of Model S and Model X SUV were less than what the company predicted. The stock fell upon this news and left critics wondering about the demand for these older models.
“They haven’t changed much on the exterior or much on the package,” said Stephanie Brinley, an IHS Markit analyst. “I can certainly understand where Model S sales may be softening a little bit because it’s an older product. That could be contributing to the issue.”
Large-scale production for Model 3 is set to begin later this month.