The electric carmaker, led by Elon Musk, has cut prices several times since last year, sacrificing profit margins to boost sales.
Tesla missed market expectations for gross first-quarter gross margins on Wednesday as a series of steep price cuts aimed at boosting demand in a sluggish economy and fending off growing competition.
Elon Musk-led Tesla reported a combined gross margin of 19.3 percent, compared with expectations for 22.4 percent, according to 14 analysts surveyed by Refinitiv. This is the lowest level since the fourth quarter of 2020.
A higher gross margin means the company retains more capital, which can then be used to cover other costs or pay down debt.
Shares of the Austin, Texas-based automaker fell nearly 4% after hours.
The electric carmaker has cut prices several times in the U.S., China and other markets since late last year, as Musk said Tesla may sacrifice its industry-leading profit margins to boost sales during the recession.
However, analysts say Tesla may need to cut prices further as it is under pressure from an ongoing price war, especially in China, and underpins its growth as it churns out cars at its new factories in Berlin and Texas. The needs of an aging model lineup.
In the U.S., federal subsidies have boosted sales only modestly recently, while Tesla has cut vehicle prices six times so far this year, weighing on its gross vehicle margins. It also extended price cuts in Singapore, Israel and Europe.
Chief Financial Officer Zachary Kirkhorn pledged in January that Tesla would not fall below 20% profit margins and an average selling price of $47,000.
Tesla reiterated on Wednesday that it expects to deliver about 1.8 million vehicles this year.
The electric car maker has previously said that logistical issues have caused it to deliver far fewer cars than it makes. It delivered about 18,000 fewer cars than it built in the first quarter.
The company reported first-quarter revenue of $23.33 billion, compared with the consensus estimate of $23.21 billion, according to 22 analysts polled by Refinitiv.
The company reported a net profit of $2.5 billion, down from $3.32 billion a year earlier.
“We also suspect that Tesla’s decision to continue lowering prices will cause headaches for rivals,” Canaccord Genuity analyst George Gianarikas said in a broker note ahead of the earnings release.
“While Tesla’s industry-leading margins may suffer in the near term (as articulated in the company’s 4Q22 earnings call), many EV competitors are struggling to turn a profit.”
Tesla made its sixth price cut on Tuesday ahead of earnings, sending its shares down along with those of its electric car rivals Lucid and Rivian.
Shares of the companies were down slightly in after-hours trading on Wednesday.