Tesla is showing signs of weakening fundamentals, with Wells Fargo analysts projecting that the company’s free cash flow (FCF) could turn negative for the first time since 2018. In a note released Tuesday, the analysts maintained their Underweight rating on Tesla stock and a price target of $120.
The report highlighted expectations for a significant decline in vehicle deliveries, stating, “We now expect FY deliveries down 21% y/y,” and noting that “Q2 deliveries look ~flat vs. a weak Q1.”
To hit the consensus forecast of 411,000 vehicles, Tesla (NASDAQ:TSLA) would need an extraordinary “>50% m/m jump in deliveries” during June. However, Wells Fargo’s own forecast stands at roughly 343,000 units, nearly 17% below the market consensus.
The bank added, “We recently flagged Q2 deliveries aren’t showing signs of recovery,” pointing to ongoing challenges.
Margins are also under pressure, with the note citing “weaker deliveries & [pricing] in conjunction with lower ZEV credits & Energy Gen tariffs” as factors negatively impacting profitability.
Regulatory credits, once a vital contributor to Tesla’s earnings, are now a source of risk. According to the analysts, “CARB’s end also implies >10% EBIT risk from ZEV credits,” and they estimate that ZEV credits account for about half of Tesla’s total regulatory credit income.
Tesla’s aggressive capital expenditure forecast—exceeding $11 billion for 2025—adds to the concerns. “All-in, we now forecast FCF burn of $1.9B, the first negative FCF FY since 2018,” the note stated.
Investor confidence is reportedly being undermined by slower Model Y sales, a lack of updates on the more affordable vehicle model, and limited progress on the Robotaxi and Optimus projects.
Valuation remains a key worry for Wells Fargo. “The stock trades at a staggering 172x consensus ’25 EPS & >400x our ’25 EPS,” they said, warning that Tesla’s growth trajectory remains negative with “no sign of inflection.”
Although some limited upside could come from Bitcoin holdings and easing tariffs in China, the analysts concluded that the “razzle dazzle [is] getting harder” as execution risks and delayed product launches weigh on market sentiment.