Tesla's worst nightmare ... cheap gas

Elon Musk: Model 3 'will eventually be made in China'

Elon Musk has bigger problems than "super rude" customers and exploding SpaceX rockets. Tesla's stock has crashed and burned too.

Tesla (TSLA) stock is down more than 25% so far this year. It hit its lowest level since February 2014 on Wednesday.

Wall Street has grown increasingly skeptical about the company in recent weeks.

Adam Hull, an analyst with European investment bank Berenberg, initiated coverage on Tesla Wednesday with a sell rating.

Pacific Crest analyst Brad Erickson said in a report Tuesday that investors should "avoid" Tesla stock. He cited concerns about sluggish demand for the company's new Model X crossover.

And even longtime Tesla bull Adam Jonas of Morgan Stanley is suddenly feeling a little less optimistic about the electric car company. Jonas cut his price target from $450 a share to $333 on Monday.

That's still more than 80% higher than Tesla's current stock price. But Jonas conceded that Tesla could be hurt by the continued plunge in oil prices as well as increased competition in the race to create an autonomous, or self-driving, car.

Tesla is working on a "cheaper" electric car called the Model 3. It is expected to cost around $35,000.

Related: Tesla tries to open its first Michigan dealership

Musk has promised more details about the Model 3 in March. Tesla has said it could begin selling the car in 2017 but most analysts believe 2018 is more likely.

The company still needs to get its new gigafactory in Nevada up and running in order to ramp up production for all the lithium ion batteries Tesla will need for the Model 3.

The Model 3 -- Tesla's first mass market car -- is a big reason why Musk thinks the company could deliver 500,000 vehicles a year by 2020.

Jonas is no longer convinced. As long as oil prices remain low, average consumers (as opposed to the wealthy who can afford to buy a Model S or Model X and presumably aren't checking gas prices daily) may not feel compelled to switch to an electric car.

Related: Elon Musk says electric cars will 'suffer' from cheap oil

As a result, Jonas believes Tesla may be only able to deliver 246,000 cars by 2020.

"Low demand for electric vehicles categorically and globally in a $30 oil environment leads us to reduce volume assumptions for the Model 3," Jonas wrote.

That's bad news. Tesla's stock is still trading at an insane (or is it ludicrous?) valuation of more than 100 times 2016 earnings estimates.

Investors have been willing in the past to overlook this sticker shock inducing multiple because they assumed that Tesla would have the electric car market mostly to itself.

That's no longer the case. If there is going to be real demand for a lower-priced electric car, GM (GM) is going to find out first. Its Bolt -- which will cost about $30,000 -- is coming out later this year.

Tesla is also going to face a challenge from several much bigger companies in the self-driving market.

GM is partnering with ridesharing startup Lyft to develop autonomous cars. Ford (F) is reportedly working with Alphabet (GOOGL, Tech30) (Google, if you're nasty) on driverless vehicles.

And it's no secret that a little company named Apple (AAPL, Tech30) is said to be working on a self-driving car too. That's one of the reasons why rumors of Apple buying Tesla keep popping up every now and then.

Related: Tesla vows to ramp up production in 2016

Tesla is a company beloved by its early adopter fans. But it could risk becoming the Whole Foods (WFM) of the electric car world.

Whole Foods legitimized the organic grocery market ... and then watched the likes of Walmart (WMT), Costco (COST) and Kroge (KR)r rush in with lower-priced products.

Musk will have a chance to get Tesla's stock back on track when the company reports its fourth quarter results on February 10.

Tesla has already said the company delivered 50,850 vehicles to customers in 2015. That was below the forecast of 55,000 that Musk promised at the beginning of last year.

So Wall Street is very anxious to hear what Musk has to say about 2016. He has indicated in the past that deliveries could increase 50% annually for the next few years.

That means Tesla probably needs to indicate that it plans to deliver more than 75,000 vehicles this year in order to keep investors from freaking out any more than they have already.

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