Tesla Inc. missed first-quarter profit estimates after a series of price cuts designed to boost demand squeezed margins.

Revenue rose 24 per cent to US$23.33 billion in the quarter, nearly in line with Bloomberg estimates of US$23.35 billion. Profit excluding some items fell to 85 cents a share, slightly below the 86-cent average of estimates compiled by Bloomberg, while free cash flow slumped to a two-year low of US$441 million. Analysts had expected free cash flow to reach US$3.24 billion in the quarter.

The Austin, Texas-based electric-vehicle maker has been slashing prices to protect its leading market position. Tesla said its operating margin was 11.4 per cent in the three-month period, down from 16 per cent last quarter and 19.2 per cent a year ago. Unusually, it didn’t break out its automotive profit margin, which was more than 30 per cent at the start of 2022.

Investors are showing some nervousness about that aggressive pricing strategy. The company’s shares slid more than 4.5 per cent in late trading in New York after the results were announced. The stock was up 47 per cent so far this year through Wednesday’s close. 

“Tesla is going through a rough patch. Inventory is rising,” said Gene Munster, managing partner at Deepwater Asset Management. “They are holding things together, but investors want to see some of these trends start to improve.”

Tesla’s profitability sets it apart from other EV companies and is closely watched by investors. The Elon Musk-led carmaker downplayed concern about its recent price cuts, saying its operating margins fell “at a manageable rate.” It said higher vehicle deliveries and raw materials costs played a factor in reducing profits.

“We continue to believe that our operating margin will remain among the highest in the industry,” the company said in a statement to shareholders.

The EV maker said output this year will meet previous guidance for average annual growth of 50 per cent over multiple years, and said it’s on track to deliver about 1.8 million vehicles this year. The company currently makes the Model S, X, 3 and Y. It produced 440,808 cars and delivered 422,875 vehicles in the quarter, resulting in excess inventory of about 18,000.