Tesla stock (TSLA) fell on Tuesday after Wells Fargo sounded fresh alarms over the company’s core auto business and its free cash flow outlook. The firm cited a combination of falling volumes, shrinking regulatory credits, and persistent pricing pressure that could push Tesla’s free cash flow into negative territory.
Wells Fargo analyst Colin Langan pointed out that Tesla’s fundamentals are deteriorating more than expected. The bank now forecasts a 21% year-over-year decline in second-quarter deliveries, with its 343,000 estimate sitting roughly 17% below the broader Street consensus.
“New Model Y appears weak given inventory building & promotions. There is also no update on the affordable model, the only driver of 2H [second half of the year] volumes,” Langan wrote in a note to clients. “Order px [pricing] is ~stable, though financing promos & inventory discounts continue. We expect lower margin q/q due to px.”
Tesla shares were down 4% in afternoon trading, underperforming the broader market.
Even more concerning in Langan’s analysis was Tesla’s free cash flow trajectory, which he warned could turn negative in 2025.
The Senate’s recent decision to end California’s authority to regulate air pollution could deal a major blow to Tesla’s earnings from regulatory credits. “Game over” is how Langan described the move for California’s regulatory board, CARB. Without the mandate for automakers to buy zero-emission vehicle (ZEV) credits from companies like Tesla, Wells Fargo estimates full-year EBIT could take a 16% hit. California has since filed suit against the federal government in an attempt to restore the rule.
Factoring in lower deliveries, dwindling EV credit revenue, pricing pressure, tariffs, and continued capital expenditures, “We now forecast FCF [free cash flow] burn of $1.9 billion, the first FCF FY since 2018,” the note said.
Langan also expressed concern about Tesla’s robotaxi pilot program in Austin. “The FSD [full self-driving] testing in Austin seems to be w/in a limited range, at low speed & heavily supervised. We see a risk of ramping up too quickly as an accident would be a major setback,” he said.
While analysts like Wedbush’s Dan Ives and Morgan Stanley’s Adam Jonas have pointed to Tesla’s FSD and robotaxi efforts as the gateway to unlocking trillions in future value, Langan emphasized the stock’s premium valuation. He estimates Tesla currently trades at 172 times projected 2025 earnings per share.
Langan reiterated his Underweight rating and $120 price target. He and Wells Fargo have maintained a bearish stance on Tesla since March of last year and did not capture the stock’s rally following President Trump’s reelection. Tesla shares are down nearly 22% year-to-date but have gained 68% over the past 12 months.
Pump Radar
Stock Alerts