As the electric car manufacturer cut prices to increase demand in the face of rising borrowing rates, Tesla‘s (TSLA.O) third-quarter gross margin decreased from a year earlier and narrowly missed Wall Street projections.
On Wednesday, Tesla maintained its 1.8 million vehicle yearly sales goal. In order to meet its annual delivery objective in the face of increased competition and a general downturn in demand for electric vehicles, some analysts predicted that Tesla may need to further reduce costs.
Since January, the company has resorted to substantial price cuts and promotions, including decreases of more than 6% across models in the third quarter, to boost sales during a period of pressured global demand.
Despite the fact that these initiatives increased sales in the first half of the year, scheduled factory retooling to be ready for the manufacturing of new models slowed down Tesla’s deliveries between July and September.
As the manufacturer strives to produce a record 476,000 vehicles in the fourth quarter in order to fulfill its yearly objective, investors and experts anticipate further price reductions.
Even still, investors believe Tesla will outperform competitors in a shaky economy and benefit from a long-term margin gain from its self-driving software, as evidenced by the stock’s more than doubling this year. The stock of the company dropped 2% during extended trading on Wednesday before paring losses to gain 0.2%.
For the quarter that ended in September, the company recorded a gross margin of 17.9%, down from a gross margin of 25.1% a year earlier, before it had started the price reductions. Tesla’s gross margin for the second quarter was 18.2%.
The average expectation on Wall Street, according to the 21 analysts surveyed by Visible Alpha, was for Tesla to post a margin of 18.02%. LSEG data show that an average of 17 analysts surveyed anticipated a gross margin of 18.25%.
“Although production costs at our new plants continued to be higher than those at our existing factories, we implemented the necessary modifications in Q3 to enable additional unit cost reductions. In a statement released on Wednesday, Tesla reiterated its long-held conviction that an industry leader must also be a cost leader.
In the third quarter, revenue increased by 9% to $23.35 billion from analysts’ expectations of $24.1 billion. The growth rate was at its lowest point in more than three years.