Wells Fargo, one of Tesla's (TSLA, Financial) biggest critics on Wall Street, has issued warnings about the company's core automotive business and free cash flow. Analyst Colin Langan highlighted that Tesla's fundamentals are weaker than expected, projecting a 21% year-over-year decline in Q2 deliveries to 343,000 vehicles, which is 17% below market consensus.
Langan noted weak sales performance for the new Model Y amidst inventory build-up and promotions. Additionally, there are no updates on affordable models, which are crucial for sales in the latter half of the year. While order prices remain stable, ongoing promotions and inventory discounts are expected to impact margins negatively.
More concerning is Tesla's free cash flow, which Langan predicts could turn negative by 2025, marking 2023 as the first negative year since 2018. He also pointed out that the U.S. Senate's recent halt on California's 2035 combustion ban means automakers are less pressured to buy carbon credits from Tesla, potentially reducing the company's EBIT by 16% for the year.
Langan expressed concerns over Tesla's autonomous taxi testing in Austin, citing regulatory constraints and potential risks of rapid scaling. He reiterated a "sell" rating with a $120 target price, significantly lower than the latest closing price of $316.28, which fell nearly 4% following the report. Additionally, Tesla's stock was impacted by reports of a one-week production halt at its Austin factory for the Cybertruck and Model Y models.
