Wells Fargo has issued a warning that Tesla (TSLA, Financial) is facing deteriorating fundamentals, with its free cash flow potentially turning negative for the first time since 2018. The bank reaffirmed its "sell" rating on Tesla stock and set a target price of $120.
According to Wells Fargo, Tesla's second-quarter performance may fall short of expectations. Analyst Colin Langan noted that vehicle deliveries in the second quarter are likely to remain flat compared to the already weak first quarter. To meet Wall Street's delivery expectation of 411,000 units for the quarter, June deliveries would need to increase by over 50% from May. Wells Fargo predicts Tesla's second-quarter deliveries at only 343,000 units, which is about 17% below consensus estimates.
The bank also anticipates a 21% year-over-year decline in Tesla's annual deliveries, which could negatively impact its profit margins. Additionally, reduced revenue from zero-emission vehicle (ZEV) credits and over $11 billion in planned capital expenditures, along with potential working capital challenges, may contribute to negative free cash flow by 2025.
Concerns are further compounded by the lack of updates on Tesla's affordable electric vehicle and the underwhelming progress of its autonomous taxi project. As a result, Langan maintains a "sell" rating with a target price of $120.
