Tesla narrowly missed Wall Street expectations in the first quarter of 2023 and gross margins dropped significantly in a signal that a series of price cuts could hurt the company’s financials. The company posted a revenue of 85 cents a share on $23.33bn total revenue, just below analysts’ prediction of 86 cents a share on $23.34bn.

Gross margins, a figure that investors are paying close attention to this quarter, dropped from 29.1% to 19.3% year-over-year after the company rolled out a series of recent price cuts.

Tesla cut prices again on Tuesday evening, hours before the company was scheduled to release its first quarter earnings. The series of reductions has brought down the costs of the Models S, 3 and X considerably since the start of the year. Prices of Model Y vehicles were cut by $3,000 on Tuesday, and there was a 4.7% cut to the Model 3 price, which is now under $40,000 for the first time.

“Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service,” the Tesla earnings report read.

The latest price cuts mark the second reduction this month and come after the company fell short of expected deliveries. Tesla announced it delivered a total of 422,875 vehicles in the three-month period ending in March, just short of analysts’ expected 430,000 deliveries . The company said it produced 440,808 vehicles this year.

First-quarter revenue also slightly declined quarter-over-quarter, but grew significantly year-over-year from $18.76bn.

Tesla shares, which are up about 50% this year, saw a 2.5% drop on Wednesday morning in response to the new round of price cuts as investors grew wary of the potential hit to profit margins the company could take as a result. Though Tesla’s chief executive, Elon Musk, said at the end of fiscal year 2022 that the company saw the highest levels of demand after the first rounds of price cuts, some analysts are not convinced and worry that although demand has grown, the increase has been modest compared with what Musk predicted.

“Tesla’s underwhelming quarter is the latest sign that growing macroeconomic uncertainty is having some impact on demand for its electric vehicles,” said Jesse Cohen, a senior analyst at Investing.com.“The company’s operating margins took a big hit due to the negative impact of its price-slashing strategy.”

Other industry experts are more bullish on Musk’s moves. Alyssa Altman, head of transportation and mobility at digital consultancy group PublicisSapient, says Tesla has proven it can grow profitably, even if margins are down.

How the market reacts will depend on whether Wall Street focuses on Tesla’s “short-term margin contraction and not value it for what it has already become and will become over the long-term for the EV industry”, Altman said.

During the earnings call, Musk also said he thought Tesla’s autonomous driving software would be fully self-driving (FSD) this year – a claim he has made in years past.

“For those that are using the FSD beta, I think you can see the improvements are really quite dramatic,” Musk said. “There will be a little bit of two steps forward, one step back but the trend is clearly toward full self driving and toward full autonomy. I think we will do it this year. That’s what it looks like.”

The company has also been grappling with various lawsuits and other production and vehicle issues in the last quarter. In February, the company was forced to recall more than 360,000 vehicles over a self-driving software flaw that US regulators say can cause vehicles not to adhere to traffic safety laws and risk crashes. The National Highway Traffic Safety Administration (NHTSA) launched an investigation in March into complaints that Tesla steering wheels come off as they are being driven. The investigation will look into about 120,000 cars. Earlier this month, the company was forced to pay $3.2m to a Black former employee after a federal jury ruled that Tesla failed to prevent severe racial harassment. Finally, a Reuters report found between 2019 and 2022 images and videos captured by Tesla cameras that were at times highly invasive and could be tied to specific locations were shared in group chats among employees, even as the company touts privacy as a priority.

Musk, meanwhile, has reclaimed the title of world’s richest man after Tesla shares rallied in February.