Tesla on Wednesday reported a smaller-than-expected drop in its second quarter profit. The company faced production challenges caused by the COVID-19 outbreaks in China, but a string of price increases on its electric vehicles helped cushion the impact.

The EV maker posted an adjusted profit of $2.27 per share for the second quarter versus analysts' consensus estimates of $1.81. This was down from $3.22 in the preceding quarter.

Its automotive gross margin fell to 27.9 percent amid inflationary pressure.

Chief Executive Elon Musk said he expects inflation will begin to ease by the end of the year, and he told a conference call that Tesla did not have a demand problem.

He dismissed the idea that the global economic problems were hurting interest in Tesla, despite its vehicle prices rising to what he called "embarrassing levels." The U.S. price of Tesla's Model Y long-range version, now $65,990, is 30 percent more expensive compared to the start of 2021.

The company promised a "record-breaking second half" and reiterated its goal of 50 percent average annual growth in vehicle deliveries over a multi-year horizon, but did not give specific targets for 2022 deliveries.

Tesla's China factory ended the second quarter with a record monthly production. Musk said new factories in Berlin and Texas aimed to manufacture 5,000 cars a week by the end of the year, adding that Berlin had produced 1,000 cars a week in June.

Musk previously had said the new factories were "gigantic money furnaces" and that he had "a super bad feeling about the economy." 

"We are prepared for near-term margin headwinds due to [new] challenges with ramping new production, particularly in Berlin," Morgan Stanley said in a report after Tesla's earnings announcement.

Executives acknowledged some continuing tightness in the supplies of older-generation microchips, but said there were no major shortages of chips and batteries, barring unforeseen COVID-related shutdowns.