Tesla's Q2 deliveries on track for another poor quarter: Wells Fargo

Wells Fargo maintained its Underweight rating on Tesla with a $120 price target, citing concerns over weakening fundamentals in the core auto business; Q2 deliveries are trending down 21% year-over-year globally, with double-digit declines across North America, Europe, and China. Europe is a particular concern with a 42% decline, while increased competition in China from local OEMs is impacting Tesla's performance. Despite upcoming Robotaxi deployment, Wells Fargo believes it won't offset poor fundamentals and aggressive financing promotions acting as price cuts pose a risk to Q2 margins.

Analysis

Wells Fargo reiterated an Underweight rating and a $120 price target for Tesla, citing a continued weakening in the core auto business fundamentals and projecting another poor quarter for Q2 deliveries. Global deliveries in May were reported to be trending 23% lower year-over-year, with quarter-to-date (QTD) figures for Q2 down 21% year-over-year. Significant double-digit percentage declines are observed across all key regions: North America (down 13% QTD y/y), Europe (down 42% QTD y/y), and China (down 22% QTD y/y). Europe is highlighted as a particular concern, with year-to-date deliveries down 37% and May deliveries contracting 29% y/y, driven by substantial declines in 10 out of 11 reported countries. Contributing factors include generally dwindling EV demand, increased EV competition, and a tarnished brand perception in North America. In China, intensified competition from local OEMs such as BYD, which are undercutting Tesla on price, is taking a toll. Wells Fargo also notes that while website order pricing appears stable, aggressive financing promotions are effectively acting as price cuts, which, combined with lower leverage, pose a risk to Q2 margins. The bank expresses skepticism that the anticipated June 12 Austin Robotaxi deployment, despite investor focus, will be significant enough to overshadow these deteriorating fundamentals.

Key Decisions for Investors

• Investors should closely monitor Tesla's Q2 delivery figures and margin performance, given Wells Fargo's expectation of continued weakness and the impact of financing promotions.
• Consider the heightened competitive pressures, particularly in China from local OEMs and broadly from increasing EV options, as a persistent headwind to Tesla's market share and pricing power.
• Evaluate the potential for the upcoming Robotaxi event to materially alter the company's near-term financial trajectory against the backdrop of declining core business fundamentals, as analysts express doubt about its immediate impact.