Tesla Faces First Negative Cash Flow Since 2018, Wells Fargo Reports

Tesla’s delivery slump and rising competition drive first negative cash flow since 2018, threatening market dominance

Three Key Facts

• Tesla faces first negative free cash flow since 2018 with Wells Fargo forecasting $1.9 billion FCF burn amid declining deliveries and margin pressure
• Q2 deliveries expected to drop 21% year-over-year to 343,000 units, requiring a 50% monthly jump in June to meet consensus estimates of 411,000 vehicles
• Wells Fargo maintains $120 price target with Underweight rating, implying 63% downside as stock trades at 172x consensus 2025 earnings despite negative growth

Introduction

Tesla confronts its most challenging financial period in years as Wells Fargo analysts predict the electric vehicle maker will post negative free cash flow for the first time since 2018. The firm’s latest assessment paints a stark picture of declining fundamentals across Tesla’s core automotive business.

Wells Fargo analysts, led by Colin Langan, maintain their Underweight rating with a $120 price target that implies a 63% downside from current levels. The bearish outlook centers on deteriorating delivery trends and mounting pressure on profit margins from intensifying competition.

Key Developments

Wells Fargo forecasts Tesla’s full-year deliveries will decline 21% year-over-year, with second-quarter performance tracking similarly weak. The analysts project Q2 deliveries of just 343,000 units, falling approximately 17% below consensus estimates of 411,000 vehicles.

International registration data reveals broad-based weakness across Tesla’s major markets. German sales dropped more than 36% year-over-year in May, while UK deliveries tumbled 45% during the same period. Even as overall EV registrations surged in these markets, Tesla’s performance lagged significantly.

China presents particular challenges for Tesla’s growth strategy. Retail sales in the company’s second-largest market slumped 30% year-over-year to 38,588 units in May, according to China Passenger Car Association data. This decline occurs amid aggressive competition from domestic manufacturers offering lower-priced alternatives.

Market Impact

Tesla shares trade at extreme valuation multiples despite the weakening fundamentals. The stock commands 172 times consensus 2025 earnings estimates and over 400 times Wells Fargo’s earnings projections. This compares unfavorably to the broader tech sector average of 25 times earnings for “Magnificent Seven” stocks.

The company’s earnings growth trajectory compounds valuation concerns. Tesla’s projected three-year earnings growth rate stands at just 3%, significantly below the 15% average for technology peers. Despite recent gains, Tesla shares remain down more than 16% year-to-date, ranking among the worst performers in the “Magnificent Seven” group.

Wall Street analysts maintain a neutral consensus on Tesla stock, with 14 Buy ratings, 12 Holds, and nine Sells recorded over the past three months. The average price target of $285.97 suggests potential downside of 12.3% from current trading levels.

Strategic Insights

Tesla’s margin compression stems from multiple factors beyond delivery weakness. Aggressive financing promotions and price competition from Chinese EV manufacturers erode profitability across key product lines. The company’s traditional advantage in regulatory credit sales faces pressure as CARB regulations evolve.

Wells Fargo estimates that regulatory credit changes represent over 10% EBIT risk, with ZEV credits comprising approximately 50% of Tesla’s total regulatory earnings. This revenue stream historically provided crucial profitability support during challenging periods.

Capital allocation decisions amplify near-term cash flow pressures. Tesla’s capital investment guidance exceeds $11 billion for 2025, reflecting ambitious expansion plans that strain financial resources. According to Investing.com, this spending level contributes directly to Wells Fargo’s forecast of $1.9 billion in free cash flow burn.

Expert Opinions and Data

Wells Fargo analysts express skepticism about Tesla’s ability to reverse current trends quickly. “We recently flagged Q2 deliveries aren’t showing signs of recovery,” the team noted in their latest research report. They highlight that Tesla would require a “greater than 50% month-over-month jump in deliveries” during June to meet consensus expectations.

The firm’s analysis reveals regional performance disparities that underscore broader competitive challenges. Europe shows the steepest decline at 42% year-over-year, followed by China at 22% and North America at 13%. These figures reflect both market-specific dynamics and Tesla’s strategic positioning relative to local competitors.

Analysts question Tesla’s premium valuation given execution risks surrounding key product launches. “The stock trades at a staggering 172x consensus ’25 EPS,” Wells Fargo noted, while growth remains negative with “no sign of inflection.” The assessment suggests that “razzle dazzle [is] getting harder” as investors focus on fundamental performance metrics.

Conclusion

Tesla navigates a complex transition period marked by weakening core automotive metrics and mounting competitive pressures. The company’s upcoming Robotaxi launch on June 22 represents a strategic pivot toward autonomous driving technology, though analysts doubt near-term material impact on financial performance.

Wells Fargo’s analysis underscores the tension between Tesla’s premium valuation and current operational realities. The firm’s forecast of negative free cash flow reflects broader challenges facing the electric vehicle sector as demand growth moderates and competition intensifies globally.