Wells Fargo is completely bearish on Tesla! Negative free cash flow in 2025, and Robotaxi won't save it either
Wells Fargo analyst Colin Langan reiterated a downgrade rating on Tesla, predicting that free cash flow will turn negative in 2025 and that second-quarter delivery volume will decline by 21% year-on-year. He pointed out that Tesla is facing challenges such as weak deliveries, a reduction in government electric vehicle credits, and weak pricing, expecting a 16% decline in full-year EBITDA. Additionally, the launch of the Robotaxi service also faces risks, and Langan set a target price for Tesla at $120, significantly lower than the current stock price of $316.35
TradingKey - Since the rebound of 50% at the end of April, Tesla's stock price has shown weakness in the past few trading days. Before the Robotaxi trial operation on June 22, Wells Fargo analysts reiterated a downgrade rating and expressed a pessimistic outlook for Tesla: a decline in second-quarter deliveries, a reduction in government electric vehicle credits, and weak pricing will drag Tesla's profits down by 16% in 2025.
Wells Fargo analyst Colin Langan's latest report indicates that Tesla's fundamentals may be worse than expected. The analyst predicts that Tesla's electric vehicle deliveries in the second quarter will decline by 21% year-on-year.
The analyst estimates that Tesla's second-quarter vehicle deliveries will be 343,000 units, about 17% lower than Wall Street's general expectation of 411,000 units. Given the continued weakness in deliveries over the first two months of the second quarter, Tesla would need to increase its June deliveries by over 50% compared to May to meet Wall Street's average expectation, which is clearly a daunting challenge.
Langan pointed out that weak sales of the new Model Y and the lack of updates for the affordable model, which could be the only sales driver in the second half of the year, combined with ongoing promotional activities, will put pressure on Tesla's profit margins.
Additionally, the U.S. Senate has proposed to eliminate California's air pollution regulatory authority, which would cause Tesla to lose significant revenue from zero-emission vehicle (ZEV) regulatory credits. Wells Fargo estimates that this will drag Tesla's full-year earnings before interest and taxes (EBIT) down by 16%.
Therefore, Langan is concerned about Tesla's financial situation and has issued a warning that this year's free cash flow could turn negative.
As for the Robotaxi service set to be released this weekend, Langan also issued a risk warning. The FSD testing in Austin, Texas appears to have a limited scope, low speed, and strict regulations; if the testing speed is too fast, any accidents could lead to significant setbacks.
Langan reiterated Tesla's stock price target of $120, far below the latest closing price of $316.35. According to TradingKey data, the average target price among analysts is $289.296, indicating a potential downside of 12% from the latest price.
【Analysts' target price for Tesla, source: TradingKey】
