Tesla sinks as price cuts signal a ceiling for costlier models

3 car is displayed during a media preview at the Auto China 2018 motor show in Beijing

The catalyst for the plunge was the release of fourth-quarter production and delivery results, which demonstrated improvements from July's "manufacturing hell" but were nevertheless short of Wall Street analyst targets.

Tesla also announced a $US2000 price cut to all models sold in the U.S. "to partially absorb the reduction of the Federal electric vehicle tax credit". Gene Munster of Loup Ventures calculated that the lowered tax credit equaled, on average, a 3 percent discount on a Tesla. That still doesn't quite make up for the $7500 incentive's loss (combined with the new $3750 tax credit, customers now save around $5750), but it's certainly better than nothing.

At current delivery rates, Tesla's reductions would cost it more than £550million in 2019, he said.

The company said it delivered 63,150 Model 3s in the quarter, falling short of FactSet estimates of 64,900.

Tesla still hasn't shared if it's any closer to its goal of building a low-priced Model 3.

Tesla's 2018 production fell far short of a goal set almost three years ago of manufacturing 500,000 vehicles for the year.

The $44,000 Model 3 is seen is the most important auto for Tesla, with founder Elon Musk touting it as a more affordable vehicle.

Overall, total production rose 8% to 86,555 vehicles.The company churned out 61,394 Model 3s, up from a total of 53,239 Model 3s in the third quarter. The federal government only offers the tax credit to companies that have sold fewer than 200,000 plug-in vehicles. But some bearish investors are likely interpreting it as a move to stimulate demand, said Wedbush analyst Dan Ives.

Shares slid 8.4pc in early dealing, wiping $5bn (£4bn) off its market value, as the company reported that in the three months to the end of December it delivered a total of 90,700 cars, up 8pc on the record set the previous quarter.

Tesla shares fell 7.2 percent in midday trading to $308.94. This suggests that many existing reservation holders are still waiting for the cheaper $35,000 vehicle that Tesla has promised but doesn't yet build.

The company now is moving into an important phase of its business and will have to decide whether to cut production to match what appears to be waning demand, or discount its vehicles to stimulate sales like other automakers do, Gartner analyst Michael Ramsey said.

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