After a Rough First Quarter, Wells Fargo Adds Tesla to Its Tactical Underweight List

Tesla faced a challenging first quarter, and analysts at Wells Fargo do not anticipate a recovery in the near future. The bank has designated the electric vehicle manufacturer as an "underweight" tactical idea for the second quarter, maintaining a price target of $130 per share.

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This target implies a potential downside of approximately 50% from Tesla’s closing price on Monday.

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During the first three months of the year, Tesla’s stock dropped nearly 36%, marking its worst quarterly decline since the fourth quarter of 2022, when it plummeted by more than 50%. The decline has been driven by weakening sales and CEO Elon Musk’s increasingly prominent political stance, both of which have contributed to investor concerns.

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Colin Langan, an analyst at Wells Fargo, expects additional pressure on the stock moving forward. He emphasized that Tesla’s core automotive business continues to experience deteriorating fundamentals, which cannot be ignored.

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Langan also pointed out that the company remains significantly overvalued compared to the "Magnificent 7" technology stocks based on projected 2025 price-to-earnings (PE) ratios.

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Additionally, he expressed skepticism about Tesla’s plans to deploy its "Cybercab" in June, calling the initiative unrealistic due to the limited amount of unsupervised testing conducted so far.

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Beyond Tesla’s internal challenges, the company is also facing increasing competition, particularly in China’s electric vehicle market. According to Langan, demand remains weak across key regions, with delivery trends reflecting a significant slowdown.

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In China, deliveries were down 14% from the start of the year through February, while in Europe, deliveries declined by 40% over the same period. These figures indicate a growing struggle for Tesla as it competes against domestic automakers in China, who are rapidly expanding their EV offerings.

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Another area of concern for the analyst is Tesla’s much-anticipated affordable vehicle, which is expected to launch around the summer. Langan remains skeptical about the rollout, citing the lack of concrete details about the model.

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He also warned of the potential risk that a new budget-friendly Tesla could cannibalize sales of the company’s existing Model 3 and Model Y vehicles, which would ultimately put further pressure on the company’s profit margins.

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Overall, Tesla is facing a tough landscape marked by slowing demand, intensifying competition, and ongoing valuation concerns, making a near-term recovery unlikely in the eyes of Wells Fargo.

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