Shares of advanced electric car maker Tesla Inc. (TSLA) have fallen by 23.4% in 2019, through the close on July 17, while the S&P 500 Index (SPX) has soared to new all-time highs. Tesla also is 34.2% below its 52-week high. While unit sales volumes are rising, Tesla has cut prices and the sales mix is tilting heavily towards its cheapest model.

What Tesla Investors Are Watching For

A huge negative earnings surprise marked 1Q 2019 results. Tesla's actual loss on an EPS basis was 4.2 times larger than the consensus estimate, per Yahoo Finance. This raises concerns about what surprises may accompany 2Q 2019 results.

Quarterly sales revenue slid by 37% from 4Q 2018 to 1Q 2019. During 2Q 2019, Tesla has cut prices, and its least expensive vehicle, the Model 3 compact, appears to be cannibalizing sales of the pricier and more profitable Model S sedan and Model X SUV, per industry reports. Tesla will report earnings on July 24.

Analysts' 2Q Estimates

The consensus estimate for 2Q 2019, as of July 17, calls for EPS to be a loss, but only about 16% as large as the losses reported in 2Q 2018 and 1Q 2019, per Yahoo Finance. The consensus also anticipates that 2Q 2019 revenue will grow by 61% year-over-year (YOY), and rebound by 42% from 1Q 2019. However, this would place 2Q 2019 sales 11% below 4Q 2018 and 6% below 3Q 2018.

Demand Issues

Tesla delivered 95,200 vehicles in 2Q 2019, beating its old record of 90,700 in 4Q 2018 and the consensus forecast of 90,680, per FactSet. The Model 3 contributed 77,550 units (81%), beating the 74,100 expected by analysts.

The base price of the Model 3 is now $38,990, exclusive of potential incentives and gas savings, according to Tesla's website. The Model S starts at $79,990 and the Model X at $84,990.

Tesla CEO Elon Musk has claimed that Model 3 demand is “insanely high,” but acknowledged that "the inhibitor is affordability,’’ per a Journal article. Model 3 buyers may be price-sensitive, since Tesla recently reduced its base price by $1,000 when a U.S. federal tax credit was cut in half to $1,875, per Bloomberg. Tesla also cut the prices of vehicles shipped to China, by 5.6% for the Model 3, and by about 4% for the Model S and the Model X.

'Worsening Mix'

“The key question remains--will Tesla be able to sustain itself given steadily declining ASPs [average selling prices] and worsening mix?” as Arndt Ellinghorst, an analyst at Evercore ISI, asks in a report quoted by Bloomberg. As the Model 3 becomes a bigger share of units sold, the average revenue per unit declines.

Musk counts on the Model 3 to expand Tesla's sales from hundreds of thousands to millions of vehicles annually. However, reaching a wider customer base after selling to free-spending early adopters may require pricing restraint, if not additional price cuts.

Accelerating Competition

Longer-term, Tesla also faces rising competition in the market for luxury electric vehicles. Volvo is rolling out its Polestar 2 later this year, per Green Car Reports. Audi, a luxury division of Volkswagen, is already selling its e-tron. Startup Rivian Automotive plans to start selling its high-end electric pickup trucks and SUVs by late 2020, with key backing from Inc. (AMZN) and Ford Motor Co. (F).