Tesla Faces First Annual Free Cash Flow Loss Since 2018, Warns Wells Fargo

Tesla's fundamentals are deteriorating and 2025 could mark a turning point for the EV giant's financial health, according to a recent Wells Fargo note. The analysts maintained their Underweight rating on Tesla (NASDAQ: TSLA), setting a price target of $120, and cited a combination of delivery shortfalls, declining margins, and excessive capital expenditures as key concerns.

Deliveries Disappoint

Wells Fargo forecasts full-year deliveries to decline by 21% year-over-year, with Q2 volumes expected to come in at 343,000 units, about 17% below consensus estimates. To meet Wall Street's expectations of 411,000 units for the quarter, Tesla would need a 50% month-over-month surge in June deliveries—a scenario the bank considers highly unlikely.

Free Cash Flow at Risk

The firm projects a free cash flow (FCF) burn of $1.9 billion in FY2025, marking Tesla's first negative FCF year since 2018. Analysts flagged increasing capital intensity—Tesla plans over $11 billion in CapEx next year—along with falling pricing power and regulatory headwinds.

ZEV Credit Risk

Tesla's historic dependence on Zero Emission Vehicle (ZEV) credits is also facing structural decline. Wells Fargo estimates a >10% EBIT risk from declining ZEV credit revenues as state-level programs like CARB phase out. These credits have contributed as much as 50% of Tesla's total regulatory credit earnings in recent years.

Dive into Tesla's Core Financials:

• Owner Earnings: A clear view of Tesla's operating cash flow minus CapEx

• Price Target Summary: Real-time analyst consensus and future outlook across quarters

Investor Confidence Shaken

Other concerns weigh heavily on sentiment:

• Sluggish Model Y sales

• Lack of visibility on affordable model

• Minimal updates on Robotaxi and Optimus timelines

Tesla now trades at 172x the consensus 2025 EPS and over 400x Wells Fargo's own EPS estimate—multiples that are becoming harder to justify amid slowing growth.

While gains from Bitcoin holdings or tariff relief in China may provide short-term boosts, the analysts argue that the “razzle dazzle is getting harder” as execution risks and delayed rollouts continue to erode confidence.