Tesla’s disappointing quarterly earnings results have raised red flags about the electric vehicle market, according to analysts at Morgan Stanley.

“We see a warning from the ‘gold standard’ of EVs having a ripple effect across the industry,” wrote Adam Jonas, who heads Morgan Stanley’s auto and space research division.

Jonas was referring specifically to Tesla's third-quarter earnings, which showed a 44% profit decline compared to last year.

CEO Elon Musk said profits were down because of aggressive price reductions and the precarious state of the global economy. He also blamed rising interest rates for making car payments more expensive.

With Tesla’s profits plunging from $3.29 billion to $1.85 billion in the span of a year, Jonas said other EV makers stand little chance of becoming profitable in the current environment.

“If Tesla struggles to generate a 5% operating profit margin for its EV products with U.S. workers making $45/hour, what’s the EV margin outlook for Detroit carmakers whose EV workers may potentially earn closer to $100/hour in all in comp and benefits?” Jonas said, referring to the labor strikes at General Motors, Ford, and Stellantis.

While Jonas’ warning was addressed to investors, his analysis raises concerns about an overhyped EV market that experts say has little chance of replacing fuel cars anytime soon.

An uncomfortable truth

EV adoption is growing in the U.S., with 2023 expected to be the first year fully electric car sales exceed 1 million, according to Cox Automotive. But growing adoption and market dominance are two different things.

The U.S. Energy Information Administration (EIA) forecasts that electric and hybrid vehicles will account for roughly 17%-19% of newly purchased car sales between 2035 and 2050.

Growth will then flatten, with EVs forecast to stay below 30% of the overall market—and that’s assuming oil prices as high as $190 per barrel.

But the numbers mask an important distinction: Hybrid vehicles aren’t fully electric, which means they still require fuel. According to the MIT Technology Review, hybrids typically run 25-50 miles on electricity before guzzling gas the rest of the way.

A car market dominated by gas vehicles and hybrids will make it harder for the government to achieve its increasingly politicized green energy goals.

Consumer concerns

Following waves of early adopters, the EV market faces two major barriers: cost and access to charging stations.

Those are the two biggest concerns Americans have when considering fully electric vehicles, according to Stephanie Valdez-Streaty, director of industry insights at Cox Automotive.

EV prices have come down this year, but a new fully electric vehicle is still about $5,000 more expensive than the median gasoline car. The gap is even wider for larger EVs like SUVs.

“EVs of that size are still very expensive,” analyst Joseph Yoon of auto shopping guide Edmunds told CNBC. “We’re not quite there yet in terms of having options across the board for everybody.”

The U.S. is home to 6,000 fast charging stations, with about 50,000 total locations with EV chargers. The problem? Only 6% of them are located along interstate highways.

President Biden’s Inflation Reduction Act is trying to boost America’s EV infrastructure, but analysts say it’ll take time before consumers are comfortable going fully gas-free. Until then, gas cars will continue to dominate.