Tesla stock drops as Wells Fargo warns of weak Q2 deliveries, free cash flow under threat
Tesla stock (TSLA) is falling Tuesday as one of the Street's biggest bears is raising alarms over Tesla's core auto business and resulting free cash flow.
Wells Fargo's Colin Langan notes that Tesla's fundamentals are coming in worse than expected. The bank is expecting second quarter deliveries to be down 21% compared to a year ago, with the firm's 343,000 estimate approximately 17% below 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 trade, underperforming the broader market.
Even more pressing in Langan's analysis was Tesla's free cash flow metrics, which might go negative in 2025 due to a variety of factors.
The Senate's recent vote ending California's ability to regulate air pollution was 'game over' for the state's regulatory board, known as CARB, Langan said. The vote means that automakers will no longer need to buy zero-emission vehicle (ZEV) regulatory credits from companies like Tesla to offset CO₂ emissions, which Wells Fargo said could imply a 16% cut to full-year EBIT (earnings before interest and taxes). The state of California has sued the federal government, looking to reinstate the ruling.
Due to the combination of lower deliveries, lower EV credits, pricing, tariffs, and steady capex spending, 'We now forecast FCF [free cash flow] burn of $1.9 billion, the first FCF FY since 2018," the note said.
Langan is also concerned about Tesla's robotaxi testing 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,' Langan said.
Analysts like Wedbush's Dan Ives and Morgan Stanley's Adam Jonas believe Tesla's FSD and robotaxi service are key to unlocking trillions in value, which is notable as Langan himself estimates Tesla currently trades at 172 times 2025 EPS forecasts, a rich valuation.
Langan reiterated his Underweight rating and $120 price target. Langan and Wells have been underweight the stock since March of last year and missed the steep run-up in Tesla shares following President Trump's reelection.
Tesla stock is down nearly 22% this year, but up 68% in the past 12 months.
Pras Subramanian is the lead auto reporter for Yahoo Finance. You can follow him on X and on Instagram.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Miami Herald
2 hours ago
- Miami Herald
Tesla signs deal for $556 million grid-scale battery storage station in China
Tesla Friday signed a $556.8 million agreement to build a grid-scale battery storage station in China. The deal is with China Kangfu International Leasing Co., as well as the Shanghai local government. It's the first Tesla large-scale battery storage facility in China. In a statement on Chinese social media site Weibo, Tesla said, 'Tesla's first grid-side energy storage power station project in mainland China has been officially grid-side energy storage power station is a 'smart regulator' for urban electricity, which can flexibly adjust grid resources.' Tesla said that, when complete, this project is expected to become the largest grid-side energy storage project in China. Utility-scale battery energy storage assists energy grid management by keeping supply and demand in balance. More is being built worldwide. Tesla competed against two Chinese companies that offer similar products. CATL and automaker BYD have significant global market share in these battery storage products. China plans to add nearly 5 gigawatts of electricity supply powered by batteries by the end of 2025, which would bring the total capacity to 40 gigawatts. Copyright 2025 UPI News Corporation. All Rights Reserved.
Yahoo
3 hours ago
- Yahoo
TSLA: Tesla Robotaxi Push Could Be a $1 Trillion Game-Changer
June 20 - Tesla (NASDAQ:TSLA) is set to launch its robotaxi operations in Austin this Sunday, with about 20 Model Y vehicles operating in a designated area, Wedbush mentioned in a Friday note. The firm called the move a key milestone that could define Tesla's next phase, estimating the autonomous unit alone could eventually add $1 trillion to the electric carmaker's valuation. Wedbush maintained its Outperform rating and $500 price target, citing Tesla's global reach and progress in artificial intelligence and driverless technology. The firm expects Tesla to scale the service to roughly 25 U.S. cities within a year and sees potential policy support ahead. Analysts said a Trump presidency could accelerate regulatory clearance for full self-driving systems. Tesla plans to begin production of its dedicated robotaxi model, the Cybercab, sometime next year, the note added. Wedbush believes Tesla's roadmap on autonomy and robotics will unfold gradually, saying, Rome wasn't built in a day. In a bull case, the firm sees Tesla reaching a $2 trillion market cap by the end of 2026. This article first appeared on GuruFocus.
Yahoo
4 hours ago
- Yahoo
Does BYD or Tesla stock offer the best value?
Tesla (NASDAQ:TSLA) and BYD (OTC:BYDD.F) are the two titans of the global electric vehicle (EV) market, but their investment cases diverge sharply when you dig into the numbers and outlook. Here's how they stack up for investors looking ahead. Tesla's forward price-to-earnings (P/E) ratios remain stratospheric by any standard. The company is expected to trade at 168.8 times earnings in 2025, falling to 111.4 times in 2026 and 85.7 times in 2027. Even by its own five-year history, these multiples are elevated, and they are more than 10 times the consumer discretionary sector median. BYD, by contrast, looks far more modest. Its forward P/E is 18.4 times for 2025 and 14.2 times for 2026. That's just a fraction of Tesla's and much closer to sector norms. This huge valuation gap reflects the market's belief in Tesla's future growth, but also means any disappointment could hit the shares hard. Tesla's price-to-sales ratio for 2025 is a lofty 10.4 times, while BYD's is just 0.65 times. In other words, investors are paying a huge premium for each dollar of Tesla's sales, while BYD trades closer to traditional automaker multiples. BYD's lower multiple reflects its mass-market positioning and focus on affordability, while Tesla's premium signals expectations for high-margin growth and disruptive new business lines. Tesla boasts a market cap over $1trn, with $37bn in cash and $13bn in debt. This gives it a strong net cash position and plenty of firepower for R&D and expansion. BYD, with a market cap around $147bn, holds $21bn in cash and $5.7bn in debt. Still solid, but on a smaller scale. Tesla's financial muscle gives it flexibility, but BYD's balance sheet is also robust and supports its rapid global expansion. The real battleground is not just EVs, but autonomous driving and robotics. Tesla's valuation is highly detached from automotive peers because investors are betting it will dominate self-driving technology and unlock new business models like robotaxis and AI-powered logistics. Its Dojo supercomputer and Full Self-Driving (FSD) efforts are central to this thesis, though regulatory hurdles remain. BYD is not standing still. Its latest models integrate advanced driver-assist systems, LiDAR, and rapid-charging battery tech. This has already made headlines. However, its approach is more incremental, focusing on affordability, scale, and steady technological improvements. Coupled with the fact that it's Chinese, it hasn't been afforded the same attention by investors. BYD trades at far lower valuation multiples and has recently overtaken Tesla in global EV sales, especially in China and Europe. Meanwhile, Tesla commands a huge premium based on its potential to lead in autonomy and AI-driven transport. However, the execution risk is huge. For value-focused investors, BYD is the obvious choice, but clearly the market favours Tesla and Elon Musk's ambitions. The post Does BYD or Tesla stock offer the best value? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
