Third-quarter revenue, profit and gross margin all missed analysts' expectations and the company signaled it would keep cutting production costs to boost profits.
Tesla is trying to survive a price war it started in January, mopping up any demand for electric cars in the market even as high interest rates and price tags at rivals mute EV sales. Some analysts have said it may need to cut prices further to achieve its annual production target of 1.8 million cars.
The company said on Wednesday that upgrades made to its factories in the third quarter will help it in cutting production costs. "An industry leader needs to be a cost leader," it said in a statement.
Tesla's gross margin dropped to 17.9% in the quarter ended September, compared with 25.1% a year earlier, when it had yet to start the price cuts. In the second quarter, Tesla had posted a gross margin of 18.2%.
"I can't argue that they won't cut prices further because things are obviously tougher with higher interest rates, but I think they're awfully close to those trough margins," said Gary Bradshaw, portfolio manager at Tesla shareholder Hodges Capital Management.
Wall Street had on average expected Tesla to post a margin of 18.02%, according to 21 analysts polled by Visible Alpha. According to LSEG data, an average of 17 analysts polled expected 18.25%.
Automotive gross margin, excluding regulatory credits - a closely-watched figure - fell to 16.3% in the third quarter from 18.1% in the second quarter.
Margins fell despite a roughly $2,000 per vehicle reduction in raw material costs in the past quarter.
Tesla said its margin had taken a hit from the underutilization of new factories and an increase in operating expenses driven by its upcoming Cybertruck model, spending on artificial intelligence and other projects.
CYBERTRUCK PILOT
The company's shares were volatile in extended trading on Wednesday, ranging from up 1% to down 2%. They had closed down 4.8%.
The 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.
Tesla said on Wednesday it has begun pilot production of the Cybertruck at its Texas Gigafactory, with the first deliveries scheduled for Nov. 30.
But Tesla boss Elon Musk said there will be "enormous challenges" in reaching volume production for Cybertruck and making it cash flow positive.
"I just wanna temper expectations for Cybertruck. It will take a year to 18 months before it becomes a significant positive cash flow contributor," he said on a call with analysts.
The much-delayed vehicle is expected to challenge Rivian's (RIVN.O) R1T, Ford (F.N) F-150 Lightning and General Motors' (GM.N) Chevrolet Silverado in a hot market for pickup trucks.
Revenue in the third quarter rose 9% to $23.35 billion, compared with analysts' estimates of $24.1 billion. That marked the slowest pace of growth in more than three years.
Its average revenue per unit declined by nearly 11% from a year earlier.
On an adjusted basis, Tesla earned 66 cents per share. Analysts had expected a profit of 73 cents per share, according to LSEG data. It was not immediately clear if the numbers were comparable.
Tesla said its energy business, which sells solar panels and batteries, as well as its services business, had become a meaningful contributor to profit with more than $500 million in combined gross profit in the quarter.
