Tesla helped kick off an EV price war. Now, those lower prices are hitting the company’s sales and profits. Tesla, which has cut prices on its electric vehicles four times in the quarter and twice so far this month, earned $2.9 billion excluding special items, down 22% from a year ago. Profits fell even more compared to the third and fourth quarters of last year. The lower prices caused revenue to fall $1.3 billion compared to the fourth quarter despite record deliveries, leading to tighter profit margins. Tesla reported a gross profit margin of 19.3%. It was the lowest profit margin reported by Tesla since the end of 2020, when its operations were being significantly impacted by the early months of the pandemic. Its more closely watched automotive profit margin, excluding the bump it gets from selling emission credits to other automakers, fell to just under 19%. Both profit margins disappointed Wall Street analysts who were looking for margins to stay comfortably above 20%. While those margins were well above the profit margin of traditional automakers, it’s down nearly 10 percentage points from what it posted a year earlier and was lower than Wall Street forecasts. Asked about the future direction of its profit margins, Tesla executives declined to give any guidance. “This is a difficult environment to make a projection like this. There’s a lot of macro uncertainty,” said CFO Zachary Kirkhorn. “There’s also headwinds and tailwinds.” He did say some costs, including logistics and commodity costs, are coming down. While the company has only a fraction of the sales of established global automakers, it is by far the most valuable automaker by market cap. It’s profit margins, and strong growth targets, are key reasons for those lofty valuations. Tesla is facing growing competition on EVs from established automakers. Some, including Ford\n \n (F), have followed by cutting the price of the Mustang Mach-E, one of its key EVs. Others, such as General Motors, have announced plans for EV models that will be less expensive than the cheapest Tesla model. But Tesla is also facing headwinds from broader economic conditions, said CEO Elon Musk on a call with investors. “It is worth pointing out that the current macro environment remains uncertain,” he said. “I think people already know [that] especially with large purchases such as cars.” He said interest rate hikes by the Federal Reserve is raising the price of cars, cutting demand. And he said worries about the state of the economy is also a problem. “Whenever there is uncertainty in the economy, people will generally postpone new – big, new capital purchases like a new car,” Musk said. “This is a natural human reaction. So if people are reading about layoffs and whatnot in the press, they’re like, well, they might be worried … they might be laid off. So then there’ll be naturally a little more hesitant than they would otherwise be to buy a new car.” He defended the decision to cut prices, even if it means lower profit margins in the near term. “While we reduced prices considerably in early Q1, it’s worth noting that our operating margin remains among the best in the industry,” he said. “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 margins.” He insisted that the price cuts have resulted in orders being in excess of production. But for the last four quarter Tesla has produced 78,000 more vehicles than it has delivered to customers, a number equal to about 5% of the cars it built during that time. Shares of Tesla\n \n (TSLA), which have rebounded this year after losing 65% of their value in 2022, were down about 4% in after-hours trading following the results.