Tesla stock cratered nearly 10% on Thursday as investors assessed the impact of the electric vehicle giant’s aggressive price cuts and what CEO Elon Musk calls an “uncertain” economic environment.

Tesla has slashed the prices of some of its most popular models six times this year alone in an attempt to spur demand amid rising competition in the EV market, but analysts have cautioned that the tactic sacrifices margins. Investors got the first taste of what that might look like on Wednesday after the bell when Musk and company reported first-quarter earnings.

While Tesla’s revenue jumped 24% from a year ago in the first quarter to $23.3 billion, net income went in the other direction, sinking 24% to $2.51 billion. Price cuts also pushed the company’s gross margins down from 23.8% last quarter to 19.3%, well below Wall Street’s consensus estimate of 21.1%.

On top of that, Musk said in the follow-up earnings call that “stormy weather” lies ahead for the economy, which could cause consumers to postpone “big new capital purchases like a new car.” He also noted that the Federal Reserve’s rapid interest rate hikes have had a serious impact on affordability over the past year: “Every time that the Fed raises interest rates, that’s the equivalent to an increase in the price of a car.”

Musk’s comments and Tesla’s latest earnings disappointment have pushed the once-beloved stock even deeper into what David Trainer calls the “danger zone.”

“After first-quarter earnings and another missed growth goal, we continue to see Tesla as one of the most overvalued stocks in the market,” the CEO of investment research firm New Constructs warned in a Thursday note.

Trainer believes investors are pricing in sales growth and automotive margins that aren’t realistic, and with competition heating up, Tesla shares present a “major downside risk.” And he’s serious when he says “downside,” arguing the stock could drop as much as 80% to just $28 even under “optimistic” circumstances.

Fading growth, rising competition

For years, the booming EV market has enabled Tesla to rapidly increase its vehicle deliveries, and many analysts have argued that the trend will continue. But Trainer notes that Musk’s EV giant hasn’t been able to live up to its own lofty 50% year-over-year delivery growth goal.

In the first quarter, Tesla managed to deliver 440,808 vehicles, representing a 42% year-over-year delivery increase—even amid aggressive price cuts. The missed delivery targets are largely due to the rise of Musk’s EV competition, according to Trainer.

From Volkswagen unveiling a flagship four-door ID.7 Monday and a mass-market, affordable EV last month to Toyota’s promise to launch 10 new EV models by 2026, Tesla rivals are striving to take market share from Tesla.

“Competition isn’t going away, as legacy automakers have ample resources and cash flow to invest in the EV market for years to come,” Trainer wrote Thursday. “Tesla faces an increasingly uphill battle to secure its competitive position, which makes its current valuation look even more unrealistic.”

A lofty valuation

While Tesla has been hurt by rising EV competition, Trainer believes the main issue may be just how overvalued the stock is for investors. The EV giant trades at more than 45 times its trailing 12-month earnings, compared with the S&P 500 average of just 22.

But price/earnings ratios are often criticized by analysts because they fail to take into account a firm’s future growth prospects. With this in mind, Trainer put forward another method to value Tesla that works backwards from a company’s share price to determine how much cash flow they’d need to generate to justify their current valuation, called a reverse discounted cash flow (DCF) model.

He found that for Tesla to be valued at $200 per share, it would have to sell as many as 30 million EVs by 2031. For reference, there were only 10.6 million EVs sold globally all of last year, according to the World Economic Forum. Trainer and his research team broke down multiple “inarguably best-case scenarios” for Tesla in their latest report, including one where the company becomes the largest automaker on the planet within a decade, and found that the stock is still “significantly overvalued.”

But there’s always another side to the story…

While even the most bullish of Tesla analysts now admit that the company is facing an “EV price war,” many still believe the stock can outperform. Tesla currently boasts 21 “buy” ratings, 16 “hold” ratings, and just five “sell” ratings on the Street, according to data from the Wall Street Journal.

In a Thursday note, Wedbush tech analyst Dan Ives cut his price target for Tesla from $225 to $215, but said he remains “very bullish” on the firm’s long-term story. He argued that Tesla posted “mixed results” in its latest earnings report, but admitted that the “elephant in the room” is “softer margins.” Still, the analyst believes Musk’s strategy to sacrifice margins in order to secure long-term demand gains will pay off in the long run.

Gene Munster, another bullish veteran analyst who now serves as a managing partner at Deepwater Asset Management, pointed to the potential for growth in Tesla’s full self-driving “robotaxi” business, and noted that Musk said the Cybertruck “may begin deliveries” in the third quarter.

“In the end, I believe the company will strike a balance between margins and growth,” he wrote in a Wednesday note, arguing the company offers long-term upside.

Written by: Will Daniel @Fortune.com

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