“Almost no one actually realizes how well (supervised) FSD works,” Musk wrote in company memo. “I know this will slow down the delivery process, but it is nonetheless a hard requirement.”

Tesla’s shifting focus: accelerating AI

Musk is also looking to accelerate the group’s progress in leveraging AI technologies, which are increasingly linked to its efforts to offer self-driving capabilities in all its vehicles.

Tesla claims to have data based on around 300 million miles of driving, a figure Musk said last year would “soon be billions of miles and tens of billions of miles.” Those data, along with its AI supercomputer, could provide a huge competitive advantage in the self-driving market, he said.

But the delay of the Model 2 launch, perhaps tied to Tesla’s disappointing first-quarter deliveries, slumping global demand and intensifying competition from low-cost China rivals, will likely have a big impact on sales and earnings over the coming years.

Related: Analysts take aim at Tesla stock after Elon Musk makes unpopular decision

Tesla told investors earlier this year that 2024 growth rates for vehicle deliveries would be “notably lower” than 2023 levels, and Wall Street forecasts suggest revenue growth of around 10.5%, or $107 billion.

“While we have been at the forefront of warning investors about downside risk to Tesla’s deliveries, pricing and earnings through 2025, our longer-term buy rating was predicated on the next-gen vehicle priced at $25,000 coming late next year, which would allow the company to reaccelerate volume, margins and [free cash flow], and potentially come to dominate the western EV market,” said Deutsche Bank analyst Emmanuel Rosner.

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Tesla earnings on deck

Rosner, who lowered his rating on Tesla to hold from buy and slashed his price target by $66 to $123 per share, said the delayed Model 2 launch would “make the future of the company tied to Tesla cracking the code on full driverless autonomy, which represents a significant technological, regulatory and operational challenge.”

Within Tesla’s first-quarter earnings report, analysts are looking for a bottom-line profit of around 53 cents a share for the three months ended in March, down more than a third from 85 cents a share over the year-earlier period, on revenue of around $22.6 billion.

Tesla’s profit margins, probably the most closely tracked metric by analysts on Wall Street, are likely to narrow to around 17.2%, with estimates ranging between 14.7% and 20%, according to LSEG forecasts.

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“We view Tesla’s shift as thesis-changing, and worry the stock will need to undergo a potentially painful transition in ownership base, with investors previously focused on Tesla’s EV volume and cost advantage potentially throwing in the towel, and eventually replaced by AI/tech investors with considerably longer time horizons,” said Deutsche Bank’s Rosner.

Related: Top analyst has a harsh take on Tesla’s future

Wedbush analyst Dan Ives, a longtime Tesla bull who carries an outperform rating with a $300 price target on the stock, still thinks Full-Self-Driving could lead to “massive value creation for the Tesla story over the coming years.” But he argues Musk needs to bring investors into the new story more forcefully.

“Musk needs to commit all AI initiatives will be under the Tesla hood and will be not be separated (per his hot button tweets a few months ago),” Ives said.

“Musk also needs to recommit as CEO of Tesla for the next 3 to 5 years and take back the reins at the Tesla story, which is going through a major Category 5 storm now,” he added.

Tesla shares were marked 2.55% lower in early April 18 trading to change hands at $151.46 each. The stock hit a 52-week low of $148.70 earlier in the session and extended its year-to-date decline to around 40%.

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