Tesla fundamentals remain challenged in 2025: Wells Fargo

Investing.com -- Tesla's fundamentals are expected to face challenges in 2025, according to Wells Fargo (NYSE:WFC ) analysts, who reiterated their Underweight rating on the stock with a price target of $125 in a note Wednesday. 

Despite a 63% stock rise in 2024, the bank said the electric vehicle giant’s “fundamentals are weak and the IRA [Inflation Reduction Act] repeal is a material risk to demand and margins in 2025.”

Wells Fargo highlights that Tesla (NASDAQ:TSLA )'s 2024 deliveries fell by 1% year-over-year despite over 5% in price cuts. 

They anticipate this negative sales trend to continue in 2025 due to "diminishing returns from price cuts, the likely US repeal of IRA 30D/45W, continued China competition, and cannibalization from 'Model 2.5.'" 

The analysts also express doubts about the Model Y refresh and new launches' ability to counteract this trend.

A significant concern raised is the valuation attributed to Tesla’s CyberCab and Optimus projects, estimated at around $700 billion.

Wells Fargo compares this to Waymo, valued at $45 billion, which already offers over 150,000 trips per week. The bank suggests that regulatory or safety setbacks could significantly impact Tesla's credibility and valuation in this space.

The potential repeal of the $7,500 IRA tax credit is also said to pose a major risk to demand and margins, effectively raising Tesla’s US prices by about 12%. The analysts estimate that Tesla's Q3 automotive EBIT per car was approximately $3,600, indicating vulnerability to price cuts. 

Additionally, Wells Fargo notes that Tesla’s sales dropped 41% year-over-year in Germany after a reduction in EV incentives, underscoring the potential impact of similar cuts in the US and Europe.

Wells Fargo also speaks on ongoing pricing wars, with Tesla cutting prices by approximately 7% in 2024.

Source: Investing.com