Shares of electric vehicle manufacturer Tesla plunged 12% in early trading on Wednesday following the release of an earnings report revealing declining profits amid stiff competition and sluggish sales. The report fell short of Wall Street expectations for profit, adding to the mounting challenges faced by the company.

During an analyst call on Wednesday, Tesla CEO Elon Musk acknowledged the impact of increased competition in the electric vehicle market, stating, "There have been quite a few competing electric vehicles that have entered the market and mostly, they have not done well, but they have discounted their EVs quite substantially, which has made it a bit difficult for Tesla."

The decline in Tesla's stock price on Wednesday marks its lowest level in more than three weeks, erasing all the gains the company had made earlier this year. The recent earnings report suggests a continuated trend of declining profits for the company, having experienced two consecutive quarters of financial decline.

Interestingly, a significant portion of Tesla's profits in the most recent quarter came from revenue generated through government credits, which amounted to a substantial $890 million. Gordon Johnson, CEO of data firm GLJ Research, raised concerns about Tesla's dependence on these credits, emphasizing the company's struggles in its primary business of selling vehicles.

Critics argue that Tesla's failure to introduce a new, affordable model and a general softening in the electric vehicle market have contributed to slowing demand for the company's cars. Additionally, as competitors enter the market with alternatives, analysts believe Tesla faces a challenging path to regain its previous rapid growth.

However, proponents of Tesla point to the company's history of industry-leading innovation and anticipate a resurgence with the release of new electric vehicle models and advancements in autonomous driving software. Dan Ives, a managing director of equity research at Wedbush, remains optimistic about Tesla's prospects, downplaying the recent earnings report and emphasizing the significant potential gains from the company's development of autonomous vehicles.

During the analyst call, Musk highlighted the progress made by Tesla in improving its full self-driving software, expressing confidence that customers would witness a significant improvement. Nevertheless, Tesla has faced setbacks with its autonomous systems, having recalled around 2 million cars last December due to a safety issue related to its autopilot system, and an additional 360,000 cars two months later over crash risks tied to its self-driving system.

Amidst these challenges, Tesla has also announced a delay in the launch of its Robotaxi service, pushing it back until October. This move drew skepticism from Johnson of GLJ Research, who questioned the company's ability to deliver on its Robotaxi initiative, noting, "Tesla doesn't have one Robotaxi on the road."

As the electric vehicle market becomes increasingly competitive, Tesla will need to navigate these hurdles to regain its momentum and sustain future growth. With the emphasis now shifting towards autonomous driving and advancements in Artificial Intelligence, only time will tell if Tesla can assert itself once again as a leader in the industry.