Ask any market analyst and they will tell you the auto business is a tough business for investors. They'll say energy is a tough business, too. While both are tough, they also happen to be businesses (NASDAQ: TSLA) competes in. Given Tesla stock's wild success, the company must have been doing something right these past few years.

Still, the market is largely about what a company is going to do in the future, and Tesla's operations are starting to show strain as it manages a dramatic increase in capacity and takes on improved competition globally. Making 100,000 electric vehicles (EVs) at a high margin is one thing in the auto sector, but making millions of vehicles at high margins is something completely different, as Tesla is finding out.

Enthusiasm for Tesla stock comes, in part, from its reputation as a high-margin automaker, but that narrative has fallen apart in the last two years. Structural undersupply during the height of the pandemic gave Tesla an excuse to raise prices for vehicles in high demand. Now in late 2023, the company has seen demand ease and competition increase and it's cutting prices to move what is now a growing supply of vehicles. These adjustments led to a sharp decrease in margins that continues today.

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Source Fool.com