Wells Fargo analysts recently emphasized in a note to clients that TSLA should not be considered a "Trump trade" despite some perceptions to the contrary.
The firm's stance is based on several key factors affecting Tesla (NASDAQ:TSLA)'s current and future performance. Firstly, the bank highlights what it sees as Tesla's weak fundamentals, which it says were evident in the second quarter.
The company reported an EPS of $0.52, which missed consensus estimates, and its auto gross margin, excluding electric vehicle credits, fell to 14.6% from 16.4% in the previous quarter.
Although Tesla managed to sell nearly double the electric vehicle credits compared to the previous quarter, Wells Fargo says these weak fundamentals overshadowed this achievement.
"TSLA Q2 had no 'razzle dazzle', leaving investors focused on the weakening fundamentals," Wells Fargo analysts noted.
Moreover, they note that Tesla faces significant political and tariff risks. The company's CFO warned of second-half headwinds due to EU tariffs on Chinese imports and recent US EV battery tariffs.
These tariffs are expected to add approximately $9,000 to the cost of EU Model 3s and $1,000 to US Model 3 Standard Range vehicles. While Tesla benefits from the Inflation Reduction Act (IRA) buyer credits and production tax credits, Wells Fargo believes a potential Trump administration's negative stance on electric vehicles and the IRA poses a major risk.
"While TSLA is viewed as benefiting from a Trump win, we see major risks given his negative view on EVs & IRA," Wells Fargo analysts explained.
Fundamentally, Tesla's challenges persist, according to the bank. The company reiterated its guidance of "notably lower" year-over-year delivery growth, with deliveries down approximately 7% in the first half of the year.
They add that the second half's demand drivers remain unclear, with Tesla continuing financing promotions, implying ongoing price pressure.
Furthermore, they state that despite some positive developments, such as expected lower-cost 4680 cells by the fourth quarter, the overall outlook remains uncertain.
In conclusion, Wells Fargo maintains a cautious outlook on Tesla, reiterating its Underweight rating and price target of $120, reflecting the challenges and risks the company faces in the near term.