Tesla Inc. shares dropped in early trading after the carmaker warned of more hits to its already-shrinking profitability.

Chief Executive Officer Elon Musk said Tesla will have to keep lowering the prices of its electric vehicles if interest rates continue to rise. Months of markdowns have already taken a toll on automotive gross margin, which fell to a four-year low in the second quarter.

In addition to potentially having to budge further on pricing, Tesla is pouring money into new models, including the behind-schedule Cybertruck, plus Dojo, the in-house supercomputer Musk said the company will spend at least $1 billion on by the end of next year. While Tesla remains on track to produce around 1.8 million vehicles in 2023, output will dip this quarter due to factory upgrades.

The CEO downplayed the thinner profit margins as short-term speed bumps. Investors still reacted negatively, with the stock falling as much as 4.2% before the start of regular trading Thursday.

“It does make sense to sacrifice margins in favor of making more vehicles, because we think in the not-too-distant future they will have a dramatic valuation increase,” Musk said, referring to his belief Tesla will eventually offer autonomous-driving capability that will make already-sold cars worth more.

Read More: Musk Says Tesla to Spend Over $1 Billion on Dojo

While Tesla exceeded expectations for both earnings per share and revenue, the results undermined confidence that margins have bottomed, Jefferies analyst Philippe Houchois said in a note to clients.

The carmaker’s profit, excluding some items, came to 91 cents a share, more than the 81 cents that analysts estimated. Revenue rose 47% to $24.9 billion, better than the consensus expectation for $24.5 billion.

In January, Chief Financial Officer Zachary Kirkhorn said Tesla expected to maintain a more than 20% automotive gross margin, excluding revenue from regulatory credits. He walked back that forecast in April, after the company dipped below the threshold at the start of the year.

Automotive gross margin excluding credits slipped further to 18.1% last quarter, the lowest since the second quarter of 2019.

Inventory Buildup

Adding to the Austin-based company’s challenges is its growing inventory of cars. The company said it now has 16 days’ worth of supply globally, up from 15 days last quarter and just four days a year ago.

Inventory continued to build despite steep discounts on Tesla’s best-selling models, and perks including free charging that the carmaker offered customers.

Musk declined to go into details on the degree of Tesla’s production drop in the third quarter. In January, he said there was potential for the company to make closer to 2 million cars this year.

Cybertruck

While analysts have said new models like the Cybertruck could help Tesla maintain its sales-growth rate, the pickup won’t be available in large volumes until next year. The first vehicle rolled off the line in Tesla’s Austin factory just recently, the company said over the weekend.

On Wednesday, Tesla clarified that Cybertrucks being built now are actually “release candidates” and not for sale. The company didn’t offer any updates about pricing or specifications and reiterated that it expects to start deliveries later this year.

Musk also touted progress toward Tesla potentially making its driver-assistance software available to other automakers. The CEO said Tesla is in early discussions about licensing its system to a major manufacturer, which he didn’t name.

(Updates with conference call details from second paragraph. An earlier version of this story corrected the automotive gross margin.)