The Elon Musk-led EV maker has cut prices multiple times since last year, sacrificing profit margins to boost sales.
Tesla missed market estimates for first-quarter gross margin on Wednesday, choked by a series of aggressive price cuts aimed at stimulating demand in a down economy and fending off growing competition.
Tesla, led by Elon Musk, reported a total gross profit margin of 19.3 percent, compared with expectations of 22.4 percent, according to 14 analysts surveyed by Refinitiv. This was the lowest since the fourth quarter of 2020.
A higher gross margin means that a company retains more capital, which it can then use to pay other costs or pay down its debt.
Shares of the Austin, Texas-based automaker fell nearly 4 percent in after-bell trading.
The electric vehicle maker has cut prices multiple times in the United States, China and other markets since late last year, as Musk said Tesla may sacrifice its industry-leading margins to fuel volume growth during a recession.
Still, analysts say Tesla may need to cut prices further, pressured by an ongoing price war, especially in China, and to boost demand for its old model lineup, even as its new factories in Berlin and Texas produce automobiles.
In the US, where federal subsidies have recently boosted sales only modestly, Tesla has cut car prices six times so far this year, dragging down its auto gross margin. It has also extended price cuts in Singapore, Israel and Europe.
Finance chief Zachary Kirkhorn promised in January that Tesla would stick to 20 percent margins and an average selling price of $47,000 across all models.
Tesla reiterated Wednesday that it expects to achieve deliveries of about 1.8 million vehicles this year.
The electric vehicle maker has previously said that logistics problems have caused it to deliver far fewer cars than it makes. In the first quarter, it delivered about 18,000 fewer cars than it made.
The company reported first-quarter revenue of $23.33 billion, compared with a consensus estimate of $23.21 billion, according to 22 analysts surveyed by Refinitiv.
The company reported net profit of $2.5 billion, down from $3.32 billion a year earlier.
“We also suspect that Tesla’s decision to constantly cut prices will be a headache for competitors,” Canaccord Genuity analyst George Gianarikas said in a note to a broker ahead of earnings.
“While Tesla’s industry-leading margins will likely be sacrificed in the near term (as articulated in the company’s 4Q22 earnings call), many EV competitors are struggling to turn a profit.”
Tesla’s sixth price cut on Tuesday, before the results, sent down its shares and those of electric vehicle rivals Lucid and Rivian.
In aftermarket trading on Wednesday, shares of these companies fell slightly.
