Tesla has given the first signals that it is giving up on its ambition to become a mass-market car maker. Prospective customers should be angry, and investors ought to be wary.

Over the weekend, Chief Executive Elon Musk announced a new, $78,000 version of Tesla’s car for the people, the Model 3. More important was his admission that his promised $35,000 version would cause the company to “lose money and die” if built right away.

Tesla...