Investing.com -- BNP Paribas said that Tesla’s first-quarter results could lead investors to sharply lower their expectations for the company, as demand softens and profitability comes under pressure.

The brokerage cut its 2026 earnings estimate by 38% and lowered its price target to $137 from $150, maintaining an “underperform” rating.

Tesla’s vehicle deliveries fell 13% year-over-year in the first quarter, which BNP said could drive the company’s core automotive margins to record lows.

Rising costs from tariffs, declining sales of emissions credits, and the potential loss of U.S. tax subsidies for electric vehicles are likely to weigh further on earnings, analysts at BNP added.

One of the biggest risks, according to BNP, is Tesla’s exposure to China, which accounts for nearly 40% of sales.

The firm warned that growing U.S.-China tensions could lead to a consumer backlash against American brands, similar to what happened with Japanese and Korean carmakers in past disputes.

BNP also questioned Tesla’s ability to fund its long-term ambitions, particularly its plans for autonomous vehicles and artificial intelligence.

The firm now expects the company to post negative free cash flow in 2025 and 2026, even before accounting for the estimated $30–40 billion needed to build a robotaxi network.

"With FCF set to turn negative, investors may increasingly ask how Tesla can fund its AI plans," analyst said.

“Being a serious AI player requires serious capital,” the analysts added, saying that Tesla (NASDAQ: TSLA ) may need to raise $20 billion or more in fresh equity to move forward.

BNP said Wall Street’s estimates have not yet reflected Tesla’s new challenges and sees more downside ahead unless the company raises capital or demand meaningfully recovers.