Evercore also slashed its 12-month price target for Tesla to $240 per share from $330, implying 12% downside from Friday's close. Shares of Tesla are down more than 3% to $264 on Monday.

There are many reasons to worry about Tesla, including more competition, lower U.S. tax credits and an "aging" product lineup, wrote Evercore analyst Arndt Ellinghorst, who expects these headwinds to weigh on demand and cause a 40% decline in earnings per share by 2020.

Evercore downgraded electric car maker Tesla to underperform from in-line on Monday, citing concerns on the decline in demand across all models.

"The change in recommendation and lower [price target] are driven by a more cautious view on demand across all Models, but in particular the recent severe decline in demand for Model S/X," Ellinghorst said in a note to clients. "There is increased uncertainty around near-term demand vs previous bullish forecasts and growth cannot stall for a growth company."

Shares of Tesla have fallen nearly 18% year to date amid dozens of investigations and lawsuits against the company and CEO Elon Musk. On top of the legal woes, the electric car maker's production keeps disappointing investors. The company reported weaker-than-expected delivery numbers for the first quarter overall and for its key product Model 3 midsize sedan.

Demand for Tesla electric vehicles is also challenged by the revised tax incentives. The credit for Tesla buyers was halved to $3,750 beginning Jan. 1. Tesla had slashed prices by $2,000 on all models to offset the tax credit reduction.

"The market used to be concerned about production, we're now concerned about demand," Ellinghorst said. "Without properly refreshing the models, the growth story for Model S/X appears to be over."

Tesla's stock would trade more favorably if the company raised $2 billion to $3 billion in equity, the analyst said.

WATCH: Why some think the Tesla explosion video is suspect