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With Tesla about to lose a hefty portion of its lowest effort income stream, Wall Street analysts have begun peering into their financial crystal balls en masse to try to delineate the most viable path forward for the EV giant.
One such act of financial divination has just taken place at Wells Fargo, whose analyst Colin Langan has now reiterated an 'Underweight' rating on Tesla shares, replete with a stock price target of $120 per share.
As such, Langan expects Tesla to report a Q2 EPS of just around $0.2, missing consensus expectations of a $0.41 print by a wide margin, largely due to lower EV credits and weaker margins in Tesla's energy business.
Specifically, Langan expects Tesla to report $650 million in credits for Q2, signifying a sequential growth of 9.2 percent relative to the $595 million in credits that the EV giant earned in the first quarter of 2025.
Meanwhile, as per Wall Street's consensus expectations, Tesla's energy business margins are expected to decline from 29 percent to 24 percent, largely due to tariffs on Chinese imports.
On the other hand, Tesla's automotive gross margin (ex-credits) is expected to recover to 13 percent from its recent nadir of 12.5 percent in Q1, which was largely a function of unusually high warranty costs.
This brings us to meatiest part of Langan's note. As we noted recently in another post, the federal tax credits on the purchase of EVs and solar energy systems are now set to end by the 30th of September and the 31st of December, respectively, courtesy of Trump's 'Big Beautiful Bill.'
According to Langan, this regime shift will lead to a Q3 pop for Tesla as marginal demand is pulled forward, followed by a drop in Q4. The analyst goes on to note:
"We now expect Q3 deliveries to eclipse 400K units, followed by a large drop in Q4. Also, this implies the coming 'affordable' model will be higher px and/or lower margin. We expect FY25 deliveries of 1.48M, ~10% below IR-consensus & down 17% y/y. We also expect TSLA to cut pricing by ~4% in Q4 to mitigate the end of IRA credits which implies a meaningful Q4 margin step-down."
What's more, President Trump's signsture legislation has also devastated the demand for ZEV regulatory credits by eliminating penalties for automakers for failing to meet the federal Corporate Average Fuel Economy (CAFE) standards.
According to Langan, regulatory credits contributed around 32 percent of Tesla's 2024 EBIT. Moreover, ZEV credits from CARB states made up around 50 percent of Tesla's sale of regulatory credits.
As such, the Wells Fargo analyst expects Tesla's sale of regulatory credits to fall by $170 million from Q1 to Q2. Once the ZEV credits income stream ends in Q3, Langan expects Tesla's total income from regulatory credits to be slashed in half, with just GHG and EU credits remaining - the former's overall value is likely to depreciate as the EPA continues to ease emissions requirements.
Overall, Tesla's regulatory credits are now expected to fall from a base of around $1,800 per unit in Q1 to just around $900 per unit by Q3/Q4.
As a parting shot, Langan notes:
"Tariffs & BBB Hit Energy Gen The batteries for TSLA's Energy Gen biz are LFP batteries from China & subject to China tariffs which averaged ~70% in Q2 though ended at just ~30%. If 50% of Energy Gen COGS are batteries, a just-30% tariff would lower 2024 margins from 26% to 15% in 2025."
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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