Elon Musk says Tesla will put sales growth ahead of profit

Tesla Inc (TSLA.O) boss Elon Musk on Wednesday doubled down on the price war he started at the end of last year, saying the electric vehicle (EV) maker would prioritize sales growth ahead of profit in a weak economy.

The company posted its lowest quarterly gross margin in two years, missing market estimates, as it slashed prices aggressively in markets including the United States and China to spur demand and fend off rising competition.

Shares in the Austin, Texas-based automaker were down 6% in after-hours trading.

“It’s better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy,” Musk told analysts on a conference call. He said although the economy remained uncertain, the EV maker’s orders exceeded production.

Musk, who had said earlier that he would have liked to achieve 2 million vehicle deliveries this year, declined to reaffirm that on Wednesday but stood by the company’s official target of 1.8 million deliveries.

“Tesla’s worrying China sales figures indicate demand for its vehicles is slowing more than expected in the face of rising competition from local EV companies,” said Jesse Cohen, senior analyst at Investing.com.

Tesla said in a statement it still believed its operating margin would remain the highest among big carmakers.

The company reported total gross margin of 19.3%, short of market expectations of 22.4%, according to 14 analysts polled by Refinitiv.

Tesla also did not report its automotive gross margin, a figure closely watched by investors, with Musk saying the weak economy making it hard to provide margin outlook.

The company posted an automotive gross margin of 19% excluding regulatory credits in the first quarter, down from 24% the previous quarter, according to Reuters’ calculation.

On Wednesday, Tesla said its average selling price declined in the first quarter from a year earlier, but it did not elaborate.

Analysts say the EV maker may need to cut prices further, pressured by a price war especially in China even as its new factories in Berlin and Texas churn out cars.

Tesla in the first quarter reported record inventory of $14.38 billion, up from $6.69 billion a year earlier.

It burned $154 million in cash during the quarter, and would have consumed more but for a $1.6 billion gain attributed to “proceeds from maturities of investments.”