Wells Fargo sees 5 reasons investors should brace for Tesla stock to drop another 50%

• Wells Fargo maintains 'Underweight' rating on Tesla, citing no stock rebound soon.
• Tesla's vehicle deliveries are expected to decline in Europe, China, and the US.
• Earnings may drop 25% by 2025 due to lower deliveries and lower profit margins because of price cuts.

The pain for Tesla investors may not be over, according to a Tuesday note from Wells Fargo.

For Wells Fargo analyst Colin Langan, there are a host of reasons Tesla stock should continue trending toward the bank's $130 price target, which represents a potential downside of 53% from current levels.

Analysts at the bank reiterated their "Underweight" rating and added Tesla stock to their tactical ideas list for the second quarter, suggesting they don't see a rebound imminent.

Shares of Tesla have plunged 32% year-to-date and are down 44% since mid-December.

Here are the problems the bank sees ahead for Tesla.

Vehicle deliveries will disappoint

A slowdown in Tesla vehicle sales in Europe, China, and the US will fuel a slowdown in vehicle deliveries for the first quarter, likely disappointing investors.

Wells Fargo highlighted that through 2025, deliveries were trending 40% lower in Europe, 14% lower in China, and 3% lower in North America.

The slowdown in Tesla sales coincides with nationwide protests against the car company, driven by CEO Elon Musk's close ties to the Trump administration and his work with DOGE to slash the government's budget and reduce the federal workforce.

Earnings set to decline

Wells Fargo warned that the expected sales slowdown will fuel a further decline in Tesla's earnings results.

The bank noted that Tesla has few levers to pull to drive a sales boom, as the company has already lowered prices over the past two years.

Additionally, the potential elimination of a $7,500 Federal tax credit by the Trump administration could further exacerbate Tesla's sales woes.

The bank estimates that the combination of lower deliveries and price cuts will reduce Tesla's earnings per share by 25% in 2025.

Questions surrounding a low-cost model

Most of Wall Street's bullish outlook for Tesla stock hinges on the company releasing a low-cost vehicle priced under $30,000.

The arrival of the long-awaited cheap Tesla isn't as imminent as some have expected, though, the bank suggested.

"The lack of details so close to the reveal makes us cautious on the affordable model," Langan said.

If the lower-cost "Model 2.5" is released, it would likely boost sales, but also weigh on profit margins if it diverts buyers away from Tesla's higher-cost vehicles.

Wells Fargo estimates that new model launches cannabialize about 16% of related model volume for Tesla.

Not sold on the Cybercab

Tesla's highly anticipated launch of a robotaxi network in Austin, Texas in June isn't winning over Langan, who's concerned that its technological approach to autonomous driving may not be the right one.

"We remain skeptical of a safe & successful Austin Cybercab launch given limited unsupervised testing & their vision-only approach," Langan said, adding that experts believe Tesla's autonomous driving tech has "considerable safety concerns."

Tesla uses a suite of cameras and software for its self-driving technology, rather than the more expensive LIDAR systems used by Waymo and other fully self-driving platforms.

On top of that, investor expectations for the self-driving rollout are big, and Tesla may not be able to deliver.

"Anything short of a deployed fleet ride-hailing paying consumers by this June will likely be seen as disappointing," Langan added.

Valuation not attractive

Finally, Langan highlighted that at its current valuation, Tesla stock screens poorly relative to its mega-cap tech peers.

Its price-to-earnings multiple of 96x is nearly quadruple the 25x multiple of others in the Magnificent 7 cohort — and that higher valuation comes with slower earnings growth.

Langan estimates Tesla will deliver three-year earnings per share growth of 3%, well below the Magnificent 7 of about 15%.