(Bloomberg) — Tesla Inc. shares slid the most in more than three months after Elon Musk indicated his company will keep cutting prices to stoke demand even after markdowns early this year took a significant toll on profitability.

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Tesla’s operating margin shrank to 11.4% in the first quarter, a roughly two-year low, after the company marked down its electric vehicles in January and March. Musk has done several more rounds of price cuts already this month and said he’s comfortable making less money on each car sold.

“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” the chief executive officer told analysts late Wednesday. He and Chief Financial Officer Zachary Kirkhorn walked back an automotive margin forecast for the year and cautioned repeatedly that economic conditions are uncertain.

Tesla fell 9.75% — the most since Jan. 3 — to $162.99 in New York on Thursday. The stock had gained 47% this year through Wednesday.

Tesla’s discounts have been dramatic both in scale and time span — it’s dropped the starting price of the Model Y by 29% in just over three months. Musk’s moves have ignited debate over whether he’s operating from a position of strength or weakness. While Tesla remains the top seller of EVs and is in the rare position of manufacturing them profitably at scale, its growth has slowed dramatically as borrowing costs rise and more automakers roll out competitive plug-in models.

“Tesla is going through a rough patch,” 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 automotive gross margin excluding sales of regulatory credits dipped to 19% for the quarter, below the 20% threshold Kirkhorn said three months ago the company expected to stay above this year.

“It’s difficult to say what the margin will be,” Musk said, when asked what level of profitability Tesla was comfortable with.

Kirkhorn added that shrinking margin will only be cause for concern if it cuts into Tesla’s ability to reinvest in future product.

“We have a lot of space before that becomes something we have to revisit,” he said.

Tesla remains ahead of other automakers in return on sales: In 2022, General Motors Co. reported an operating margin of 6.6%, while Ford Motor Co.’s was 4%.

Revenue rose 24% to $23.33 billion in the first quarter, in line with analysts’ average estimate of $23.35 billion. Profit excluding some items fell to 85 cents a share, just shy of consensus for 86 cents, and free cash flow slumped to a two-year low of $441 million.

Tesla reiterated that its output this year will meet previous guidance for a compound average growth of 50% over multiple years, saying it’s on track to make at least 1.8 million vehicles this year. It produced 440,808 and delivered 422,875 cars in the quarter, resulting in days supply of inventory building to levels last seen in early 2020.

While Musk told analysts that orders are exceeding production, he made a similar statement on Tesla’s last earnings call.

Production of Tesla’s long-awaited Cybertruck pickup is on track to start later this year at its plant in Texas, with a delivery event likely taking place in the third quarter. The company also is making progress on its next-generation vehicle platform, which it expects to be able to produce at half the cost of current models.

Tesla’s unique position among EV makers has drawn comparisons to the early days of Ford. Its early 1900s innovation — the moving assembly line — put other carmakers out of business by lowering costs to levels other companies couldn’t match.

Musk said Wednesday that Tesla isn’t looking to put competitors out of business, but to make its cars more accessible amid rising interest rates and stubborn inflation.

“They’re going to use the room in their margin to create more demand,” Ben Kallo, an analyst at Robert W. Baird, said in a Bloomberg Television interview. “They can cut prices and box out other people.”

–With assistance from Esha Dey and Brian Eckhouse.

(Updates shares in first and fourth paragraphs.)

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