Wells Fargo says Tesla shares to drop 60% with sales trending 'meaningfully weaker'

Wells Fargo reiterated its underweight rating on Tesla with a $120 price target, implying a 61% drop from Monday's close, citing weakening automotive fundamentals, including a 23% year-over-year decline in May global deliveries and aggressive financing promotions acting as price cuts. Analyst Colin Langan believes potential tailwinds like autonomous driving are insufficient to offset these weaknesses, and doubts the upcoming robotaxi launch will overshadow the poor fundamentals. Tesla faces headwinds including slowing sales, competition in China, and uncertainty regarding potential tariffs, contributing to a year-to-date stock decline of over 22%.

Analysis

Wells Fargo has reiterated an underweight rating on Tesla (TSLA) with a $120 price target, implying a substantial 61% potential decline from its $308.58 closing price, citing deteriorating fundamentals within the core automotive business. The bank's assessment points to a significant 23% year-over-year decrease in May global deliveries and observes that aggressive financing offers are functioning as de facto price reductions, which, combined with lower operational leverage, presents a risk to Q2 margins. Analyst Colin Langan further opines that potential positive catalysts, including Tesla's autonomous driving initiatives and the scheduled June 12th robotaxi demonstration in Austin, are currently insufficient to counterbalance these fundamental automotive weaknesses, dismissing the robotaxi event as unlikely to overshadow the poor underlying performance. Tesla confronts multiple ongoing headwinds, such as slowing sales growth, heightened competition in key markets like China, and persistent uncertainty regarding the impact of potential U.S. tariffs on its supply chain. This confluence of factors has contributed to the stock's notable underperformance, with a year-to-date decline exceeding 22% and a drop of nearly 10% in June alone.

Key Decisions for Investors

• Investors should scrutinize Tesla's upcoming Q2 financial reports for tangible evidence of trends in global delivery volumes and automotive gross margins, particularly in light of the reported 23% year-over-year decline in May deliveries and ongoing price pressures from financing promotions.
• The market reaction and subsequent commentary following the June 12th robotaxi event should be evaluated cautiously, as its near-term financial contribution is expected by some analysts to be limited and insufficient to offset the core business's current challenges.
• Ongoing vigilance is required regarding Tesla's competitive positioning, especially against rivals in the Chinese EV market, and the potential ramifications of evolving U.S. tariff policies on the company's cost structure and international sales.
• In light of Wells Fargo's bearish $120 price target and the stock's significant recent downturn, a thorough reassessment of risk exposure to TSLA is warranted, potentially deferring new investments until there are more definitive signs of a fundamental operational recovery.