The Tesla Inc. magic is disappearing.

Sales of its high-margin models S and X plunged more than 50% in the first quarter. The Silicon Valley automaker is struggling to make a profit on its $35,000 Model 3 compact, founder Elon Musk’s electric vehicle for the masses.

And the auto "establishment” competition from the United States, Britain, Germany and Japan — better financed, better run, more widely distributed — as well as Chinese EV players are coming with a flood of upscale EVs that threaten to challenge Tesla’s dominant position in the luxury EV space.

If past experience in the auto industry is any indication — and it usually is — major industry players are the ones to lose market share when rivals start playing their own game. Just ask Detroit, whose commanding position in the rich U.S. market dwindled to a minority share amid an onslaught from foreign competitors.

"We are clearly past peak Tesla," David Kudla, CEO of Grand Blanc-based Mainstay Capital Management LLC, said in a note. "The problem is no longer production, it is demand. And demand is clearly waning for all three Tesla models."

Equally concerning to investors should be CEO Musk's continuing tangles with the Securities and Exchange Commission, the most recent being a hearing Thursday in a New York courtroom. In the wake of tweets last summer saying he had "funding secured" to finance a buyout of the automaker — funding, it was later learned, he did not have — the federal regulator sued Musk.

He agreed to relinquish his post as chairman (to a hand-picked successor) and submit his tweets to his board for review if they carried information of material interest to investors. But he admitted to doing no such thing in an interview with CBS's "60 Minutes":  "I want to be clear," Musk told Leslie Stahl, "I do not respect the SEC. I do not respect them."

On Thursday, U.S District Judge Alison Nathan ordered both sides to hold talks over the next two weeks to resolve the SEC's contempt claim and clarify ground rules of their arrangement. Should they fail, the judge said she would rule in a case that could have sweeping ramifications for the value of Tesla shares and the company's shareholders.

The reason: Musk's persona, vision, innovative spirit and knack for challenging the status quo underpin shares in the EV maker. Muzzle or, worse, sideline him and federal regulators tasked with protecting shareholders instead could be considered complicit in cratering Tesla's market value.

Tesla may be doing that all by itself. Deliveries of all three models slumped 31% to roughly 63,000 vehicles. The Model 3 accounted for 50,900 of those, down from 63,359 Model 3's delivered in the fourth quarter.

The upshot of the sales downdraft, should it continue: will Musk and his revolving management team need to revisit whether they'll need to raise yet more money from the capital markets? If their arc of sales gains keeps bending down for any appreciable period of time, squeezing cash-flow generation even more, that could prove a tough sell.

The Musk Circus act is wearing thin. Tesla shares slumped more than 8% Thursday to close at $267.78 even as the broader markets closed higher on rising expectations of the tentative trade deal — confirmed by President Donald Trump — between the United States and China.

"Tesla reported 1Q19 total vehicle deliveries that were considerably weaker than
Street expectations, with a large miss in Models S and X, while Model 3 came in just
below recently revised estimates," Deutsche Bank says. "Moreover, Model S is likely overdue for a design refresh and competition will only intensify as the year progresses from the Audi E-tron and Porsche Taycan.

Purists dismiss such claptrap, of course, hailing the singular ingenuity of Musk's Tesla and its transformational impact on an industry whose major players long resisted electrification. That's only partly true.

There's no denying Tesla's genius in identifying a real, if still small, market for upscale EVs with a unique luxury patina of Silicon Valley. Imagine if the automaker could actually build to scale and efficiently ship its products (regularly) to would-be buyers.

That would be something to see.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him at 3 p.m. and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.

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