might be forced to recall 158,000 cars. That’s bad news. But just how bad is debatable.
On Wednesday, the National Highway Traffic Safety Administration, or NHTSA, sent a letter to Tesla (ticker: TSLA) requesting the electric-vehicle maker recall cars made between 2012 and 2018 for, essentially, problems with the center touch screen. It could result in the loss of the rearview camera image, to cite one example.
Tesla didn’t immediately return a request for comment about its recall plans. The NHTSA didn’t immediately return a request for comment about what drove the agency to send the letter.
Recalls don’t always ding car stocks. The impact depends on what the problem is, the cost to fix it, and, of course, if anyone was hurt. It can be difficult to put all those answers into context. Investors, at minimum, should be aware of the recall to avoid any nasty surprises down the road.
Tesla stock is started the day down about 1% while the
by comparison, rose about 0.2%. The 1.2% spread between Tesla stock and the rest of the market drop represents roughly $10 billion in stock market value, or roughly $61,000 a car. That’s likely too much for this recall if the issue doesn’t get worse.
Investors, by midday seem to have done that math and were less worried than before. Tesla stock at one point was up about 0.9% in Thursday trading, while the S&P 500 rose 0.3%.
Both Tesla and the broader market, however, finished Thursday in the red falling 1.1% and 0.4%, respectively.
The initial drop at the start of the trading day reflected uncertainty—which investors hate. The number of cars cited in the NHTSA letter is large and Tesla doesn’t have a traditional dealer network. That could complicate parts replacement if it comes to that. But Tesla has handled many recalls in the past at its company-owned service centers.
Recalls happen. The Tesla 2015 Model S sedan, for instance, has had four recalls issued. The car also has a five-star safety rating from the NTHSA. Some 2015
) X3 SUV models, by comparison, have been recalled three times. That vehicle also has a five-star safety rating.
Investors will likely care far more about Tesla’s coming fourth-quarter earnings report, which should happen in late January. Analysts are looking for about $1 in per-share earnings. More important than earnings will be 2021 delivery guidance. The analyst consensus estimate, over the past few weeks, has gone from below 800,000 vehicles to about 836,000 vehicles projected to be delivered this year. The highest Street estimates for 2021 deliveries are in the range of 860,000.
Deliveries, and profits, will drive Tesla shares after earnings. Tesla stock has already had a strong start to the new year, up about 20% year to date after rising more than 740% in 2020.
Write to Al Root at email@example.com