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.
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