Investing.com -- Tesla is facing deteriorating fundamentals, and free cash flow (FCF) could turn negative for the first time since 2018, according to Wells Fargo (NYSE:WFC) analysts, who reiterated their Underweight rating and $120 price target on the stock in a note Tuesday.
“We now expect FY deliveries down 21% y/y,” the analysts wrote, adding that “Q2 deliveries look ~flat vs. a weak Q1.”
To meet consensus estimates of 411,000 vehicles, Tesla (NASDAQ:TSLA) would need a “>50% m/m jump in deliveries” in June. Wells Fargo forecasts just 343,000 units, about 17% below consensus.
“We recently flagged Q2 deliveries aren’t showing signs of recovery,” said the bank.
The note also flagged worsening margin dynamics, citing “weaker deliveries&[pricing] in conjunction with lower ZEV credits&Energy Gen tariffs.”
Regulatory credits, once a critical source of profitability, are now under pressure. “CARB’s end also implies >10% EBIT risk from ZEV credits,” the analysts said, estimating that ZEV credits make up roughly 50% of Tesla’s total regulatory credit earnings.
Tesla’s high capital investment guidance, at over $11 billion for 2025, compounds the problem.
“All-in, we now forecast FCF burn of $1.9B, the first negative FCF FY since 2018,” they said.
Meanwhile, slower Model Y sales, lack of updates on the affordable model, and minimal progress on Robotaxi and Optimus are said to be eroding investor confidence.
Valuation remains a concern. “The stock trades at a staggering 172x consensus ’25 EPS&>400x our ’25 EPS,” Wells Fargo noted, warning that growth remains negative with “no sign of inflection.”
While gains from Bitcoin holdings and eased China tariffs may offer limited upside, the analysts concluded, the “razzle dazzle [is] getting harder,” as execution risk and delayed product rollouts weigh on sentiment.