Constant upheaval at Tesla Inc. reflects a company trapped by its own ambition.

The electric-auto maker halted online sales of its $35,000 version of the Model 3 sedan last week. The decision came just six weeks after Tesla said it would start selling the car and that sales for all of its vehicles would move online.

The about-face is merely the latest sign that Tesla is struggling to live up to its promise as a mass-market auto manufacturer. It followed a Nikkei report that Tesla and its battery supplier, Panasonic, are freezing investment plans at the auto maker’s factory outside of Reno, Nev. A Tesla spokesman disputed the report and said demand for battery cells continues to outpace supply.

Either way, investors are rightly worried about consumer demand for Tesla’s cars after the company recently reported a 31% sequential decline in first-quarter vehicle deliveries. Analysts expect Tesla will report an adjusted net loss of 79 cents a share when it releases full first-quarter results on April 24, according to FactSet. At the end of last year, analysts expected Tesla’s adjusted first-quarter profit would come to $1.51 a share.

Even Tesla’s once-pristine reputation for building a great consumer product has taken a hit: Consumer Reports pulled its recommendation for the Model 3 sedan back in February over concerns about the car’s reliability.


Scaling back ambition would seem sensible, since Chief Executive Elon Musk would likely have a healthier, more sustainable business as a smaller player. No auto maker has yet been able to sell an electric car aimed at the mass market with consistent profitability. But Tesla built its brand selling ultraexpensive cars to luxury buyers. That could be the foundation of a profitable business if paired with some cost cutting in the right places.

Obligations that the auto maker took on years ago make returning to that strategy nearly impossible, however. Tesla is on the hook for $18 billion in purchase obligations through 2023, primarily battery cells produced by Panasonic. It owes about $9 billion in debt and interest payments over the same period. That creates an incentive to produce as much as possible, even in the absence of enough demand.

Tesla still has some options, at least in the short term. The company said it had “sufficient” cash on hand earlier this month, but it would help to take advantage of its high stock price and raise more money, particularly if Mr. Musk can impress at a scheduled autonomous-driving investor day later this month.

Even that scenario would likely provide only a brief respite for investors, however. Dreams of dominating the auto industry—once Tesla’s greatest asset—have become a liability.

One of the biggest things preventing Elon Musk from releasing a mass market electric vehicle comes down to the vehicle's blessing and curse: its lithium-ion battery. We break down the science and the cost.

Write to Charley Grant at charles.grant@wsj.com