Tesla’s Q3 margin falls short of analysts’ expectations

Tesla’s third-quarter gross margin shrank from a year earlier, slightly missing Wall Street estimates, as the electric automaker slashed prices to boost demand in the face of higher interest rates.

Tesla on Wednesday stuck to its annual sales target of 1.8 million vehicles. Some analysts said Tesla may need to cut prices further to achieve its annual delivery target in the face of rising competition and a broader slowdown in electric vehicle demand.

The company has since January resorted to steep price cuts and discounts, including reductions of more than 6 percent across models in the third quarter, to propel sales at a time when overall demand is under pressure.

While those efforts drove up sales in the first half of the year, planned factory retooling to prepare for production of new models throttled Tesla’s deliveries between July and September.

Investors and analysts expect more price cuts as the automaker aims to deliver a record 476,000 vehicles in the fourth quarter to meet its annual target.

Still, Tesla’s stock has more than doubled this year as investors bet the company will fare better than rivals in an uncertain economy and get a long-term margin boost from its self-driving software. The company’s shares fell 2 percent in extended trading on Wednesday before cutting losses to trade up 0.2 percent.

The company reported a gross margin of 17.9 percent for the quarter ended September, compared with 25.1 percent a year earlier, when it had not yet begun the price cuts. In the second quarter, Tesla posted a gross margin of 18.2 percent.

Wall Street had on average expected Tesla to post a margin of 18.02 percent, according to 21 analysts polled by Visible Alpha. According to LSEG data, an average of 17 analysts polled expected gross margin of 18.25 percent.

“While production cost at our new factories remained higher than our established factories, we have implemented necessary upgrades in Q3 to enable further unit cost reductions. We continue to believe that an industry leader needs to be a cost leader,” Tesla said in a statement on Wednesday.

Revenue in the third quarter rose 9 percent to $23.35 billion, compared with analysts’ estimates of $24.1 billion. That marked the slowest pace of growth in more than three years.