Tesla shares fell as much as 7.6% in postmarket trading after closing down 2.1% to $864.16.

“Investors continue to be laser focused on the profitability picture,” Dan Ives, a Wedbush Securities analyst with a neutral rating on the stock, wrote in a research note.

The Palo Alto, California-based company, which joined the ranks of the prestigious S&P 500 Index last month, said operating margins shrank to 5.4% in the latest quarter, down from 9.2% in the previous three months. It blamed aggressive price cutting in China, supply-chain costs and a big pay package for Chief Executive Officer Elon Musk and other executives.

“It was a mixed bag,” Gene Munster of Loup Ventures said in an interview, noting the dip in margins was accompanied by price cuts to win market share. “It’s negative for today but good for the long term, given the EV market is nascent.”

A ‘Noisy’ Quarter

Despite missing analysts’ income estimates, the results showed Tesla’s first full-year profit. The company has defied skeptics by achieving sustained growth and been rewarded with a record stock price and a $819 billion market capitalization, dwarfing other carmakers. Its success has helped spur a rally in shares of other companies with lofty EV strategies, both old and new.

“2020 was a defining year for us on many levels,” Musk said on the quarterly earnings call. “We delivered almost as many cars last year as we have produced in our entire history, really an incredible growth rate despite a very challenging 2020.”

Tesla did not give a specific number for how many cars it expects to deliver in 2021, but said that it anticipates beating last year’s 50% growth rate, which would mean more than 750,000 units. It delivered almost 500,000 vehicles globally in 2020.

But that growth is coming at a cost. Tesla said the average selling price of its vehicles in the fourth quarter was 11% less than a year ago. That compares with a 3.1% gain in average transaction prices for all new vehicles sold in the U.S. last year to a record $36,786, according to market researcher TrueCar.

Musk has said he would be willing to sacrifice profitability to sell more and cheaper cars. But the CEO warned employees in an internal email last month that Tesla’s shares could get “crushed” if investors start to worry about its ability to deliver on profit expectations.

Chief Executive Officer Zachary Kirkhorn indicated the “noisy” quarter — due in part to higher executive compensation tied to the rally in Tesla’s shares — was more of an anomaly than the new normal. “Operating margin will continue to grow and remain industry leading,” he said on the call.

Credit-Fueled Revenue

Tesla’s revenue hit $10.74 billion in the October to December period, surpassing analysts’ estimate for $10.38 billion and exceeding the $7.38 billion in the last quarter of 2019.

The company earns money by selling regulatory credits to automakers that need them to comply with carbon-emissions standards in California, Europe and elsewhere. Investors view this revenue as a double-edged sword because they want to know Tesla can be profitable from its core business: making and selling cars. Sales of regulatory credits were $401 million, up from $397 million in the third quarter.

Tesla did not specify its supply-chain cost issues, but Kirkhorn said the company is working “extremely hard” to mitigate the impacts of a global semiconductor shortage that has forced carmakers to curtail production of some models.

Read More: Carmakers Face $61 Billion Sales Hit From Pandemic Chip Shortage

The company’s surging market valuation has allowed it to raise cash repeatedly in recent months — and accrue what Musk has called a “war chest” for investment in new plants and battery technology. The automaker is building two assembly plants in Germany and Austin, Texas, which will dramatically increase its ability to supply vehicles.

Kirkhorn said Tesla can now afford to build production capacity to meet expected demand in a way it hasn’t been able to do previously. “This is an important point on capital efficiency that we haven’t had the luxury to do in the past,” he said.

Battery Supply Bottleneck

The automaker said it has been upgrading its factory in Fremont, California, to launch refreshed versions of its S and X models with new powertrains and an entirely new interior. A photo in the shareholder letter shows a small screen for passengers in the back seat. The first deliveries of the Model S began in 2012, and speculation about an overdue refresh has circulated for months.

Even though Musk has promised to launch a $25,000 model by 2023, he’s not ceding ground on high-margin luxury cars. Besides refreshing the S and X models, Tesla said the “Plaid” version of its flagship S sedan will go on sale next month and the updated Model X in April. It claims the high-performance version makes the S the fastest car in the world, beating out the Porsche 918 Spyder and Bugatti Chiron.

The much-anticipated Cybertruck pickup is on track to debut later this year, but Musk said high-volume production won’t begin until 2022. He also said Tesla plans to join the race to build an electric van but noted constraints on battery supplies have forced it to pace the debut of new vehicles.

“We will take as many batteries as they can produce. We urge them to increase their production, and we will buy as much as they can send to us,” the CEO said, mentioning leading suppliers such as Panasonic Corp., LG Chem Ltd. and Contemporary Amperex Technology Co.