Tesla Stocks Fall Nearly 4% over Reported Production Pause and Wells Fargo's...

TMTPOST -- Tesla Inc. stocks closed 3.9% lower on Tuesday, paring all their gains over the past week. Shares retreated after the electric vehicle (EV) behemoth was reported to halt part of production in Texas, in which it plans to roll out first robotaxi fleets in the world.

Credit：Tesla

Tesla told employees earlier this month that it plans to pause production on Cybertruck and Model Y lines at Gigafactory Austin, Business Insider learned on Tuesday. The pause will reportedly last for a week, starting from June 30 to July 4. It was reported that Tesla said the temporary production pause, which would be at least the third shutdown during the past 12 months, would enable the company to perform maintenance on production lines and help ramp up production. It didn’t specify outputs of which lines might be boosted following the shutdown.

The shutdown came as Tesla is gearing up its robotaxi launch in Austin, the capital city of the U.S. Texas state in which the company’s headquarters was located. Tesla’s robotaxi service is tentatively set to launch in Austin on June 22, said CEO Elon Musk in a post on X a week ago, adding that the date could shift due to the company’s “being super paranoid about safety.” He also said in the post on June 10 the first Tesla vehicle driveless trip from its factory to a customer’s house will take place on his birthday, June 28.

Musk last month told CNBC Tesla’s robotaxi service will start with about 10 Model Y vehicles in Austin, and these vehicles will be equipped with a forthcoming version of FSD, or full self-driving, known as FSD Unsupervised. Tesla will soon expand the service to thousands of vehicle should the launch in Austin go well with no incidents. Musk at that time confirmed robotaxis service will hit the streets of Austin by the end of June.

Tesla stocks on Tuesday were weighed by a negative note released by Wells Fargo, one of the Wall Street’s biggest bears. Colin Langan, a senior equity analyst at Wells Fargo Securities, in the report believed Tesla’s fundamentals are going to turn worse than expected. The analyst expected Tesla’s deliveries for the second quarter of this year to tumble 21% year-over-year (YoY) to 343,000 units. The estimated volume was around 17% below Wall Street consensus. “We recently flagged Q2 deliveries aren’t showing signs of recovery,” said Langan.

Tesla has released the worst quarterly performance by delivery in almost three years. The company delivered 336,681 EVs for the first quarter of the year, hitting the lowest deliveries since the second quarter of 2022. That represented a 13% YoY decline. Analyst previously expected Tesla’s deliveries would be between 360,000 and 370,000 units, according to StreetAccount.

“New Model Y appears weak given inventory building & promotions. There is also no update on the affordable model, the only driver of 2H [second half of the year] volumes,” Langan wrote in a note on Tuesday. “Order px [pricing] is ~stable, though financing promos & inventory discounts continue. We expect lower margin q/q [quarter-over-quarter] due to px.”

Langan expected Tesla’s earnings and free cash flow (FCF) would hit by the tumble in auto deliveries, in combination with lower EV credits, pricing, tariffs and steady capital expenditure (CapEx). Regulatory credits, Tesla’s critical source of profitability, are under pressure owing to U.S. President Donald Trump’s elimination of a waiver that allows California to regulate its air emission, effectively revoking the Zero-Emisson Vehicle (ZEV) program in the state.

“CARB’s end also implies >10% EBIT risk from ZEV credits,” Langand and other Wells Fargo analysts said. They estimated ZEV credits account for roughly 50% of Tesla’s regulatory credit earnings. Wells Fargo now forecasts FCF burn of $1.9 billion, “the first negative FCF FY since 2018”, according to the report.

Langan is also concerned about Tesla’s robotaxi testing in Austin. “The FSD testing in Austin seems to be w/in a limited range, at low speed & heavily supervised. We see a risk of ramping up too quickly as an accident would be a major setback,” Langan said in the note.

Langan maintained his Underweight rating for Tesla since March of 2024, and his price target of $120 suggested shares of the EV maker would fall more than 63% from their close on Monday.