Sales volume is anticipated to increase as a result of Tesla’s goal for more affordable electric vehicles

Tesla investors said the company’s plan to develop a smaller. More affordable electric vehicle could boost sales volume and offset the slowdown in demand, but at the expense of already tight margins.

This likely move also reflects the efforts of the company led by Elon Musk to address growing pressure in key markets, particularly in China. Where lower-cost competitors are gaining ground and where the new model is likely to debut first.

“Demand, not supply, is the bottleneck,” said Scott Acheychek, chief operating officer of ETF issuer REX Financial. Adding that a lower-cost model could help boost deliveries and factory utilization.

“If Tesla manages to maintain margins of between 15% and 20% while increasing sales volume, operational leverage works, but the risk is margin dilution.”

Demand is already under pressure. In the most recent quarter, Tesla produced almost 50,000 more cars than it delivered—the largest difference in at least four years—a sign of declining demand and growing inventory.

The problem was made worse by the elimination of U.S. incentives. President Donald Trump’s economic policy changes resulted in the phase-out of the $7,500 federal tax credit for electric vehicles, which was a major driver of demand.

The company’s market dominance is being threatened by Chinese competitors like BYD, who are growing in Europe and selling less expensive versions.