Tesla has announced a recall of several thousand vehicles due to two specific issues. While Tesla has often been able to resolve problems through software updates, these latest concerns require physical adjustments to the cars and cannot be fixed remotely.
Although recalls may sound concerning, they typically do not significantly affect automotive stock prices and are generally viewed as a watch item for investors. This is especially true for Tesla (ticker: TSLA) recalls, which are unlikely to impact the company’s stock.
The impact of recalls is more pronounced for investors depending on their investment strategy. Tesla investors, who tend to focus on growth, may be more concerned compared to traditional automotive investors, who prioritize value. Tesla’s stock, which currently trades at around 60 times the estimated 2024 earnings, differs greatly from General Motors’ (GM) stock, which trades at approximately 6 times earnings.
For traditional automotive investors, recalls have always been a part of the industry and have not had a significant impact on stock performance over the years. However, this is not the case for growth investors who may not have as much historical data to reference.
From a financial standpoint, investors can pay attention to warranty expenses to gauge the impact of recalls. In the first quarter of 2023, Tesla recorded $532 million in warranty claims expense, accounting for approximately 2.7% of total automotive sales. Similarly, GM recognized a warranty expense of $966 million in the same period, representing about 2.6% of sales.
The recent recalls by Tesla involve two specific issues. The first issue pertains to seat belts that may not be correctly attached, affecting approximately 16,000 Model S and X vehicles. The second recall involves misaligned front-facing cameras and affects fewer than 1,400 Model S and X units. These recalls prioritize ensuring the safety and reliability of Tesla vehicles.
In conclusion, while recalls are a necessary safety measure, they are not expected to significantly impact Tesla’s stock performance. By addressing these issues promptly, Tesla demonstrates its commitment to customer safety and satisfaction.
Tesla Recalls Vehicles in the U.S.
In 2023, Tesla has issued recalls for approximately 384,000 vehicles in the United States across 10 separate events. However, it is worth noting that around 95% of these vehicles do not require physical service as the issues can be resolved through software updates.
This recall should not cause concern among investors as other car manufacturers have also experienced recalls. For instance, Nissan Motor has recalled nearly 1.4 million vehicles in the U.S. this year. One of their recent recalls involves about 66,000 Leaf electric vehicles that may unintentionally accelerate. To address this issue, Nissan dealers will reprogram the cars accordingly.
Despite these recalls, investors do not seem worried. In fact, Nissan’s U.S. traded American depositary receipts have experienced a 1% increase in Thursday’s trading session. On the other hand, the S&P 500 and Nasdaq Composite have experienced slight declines of 0.3% and gains of 0.7%, respectively.
Although Tesla’s stock has seen a 7% decrease during Thursday’s trading, this is unrelated to the recall. The company recently reported second-quarter earnings which indicated ongoing margin and pricing pressures for the upcoming quarter. However, Tesla’s numbers were satisfactory, with bottom-line earnings of 91 cents surpassing analyst expectations. Furthermore, Tesla’s stock had also seen a substantial 137% increase year to date before Thursday’s trading session. The reaction observed in the stock market can also be interpreted as traders taking some profits.
