By When Tesla recalls cars, it makes headlines. And there’s a good reason why. Tesla, the most valuable auto maker in the world, led by the richest man on the planet, often faces large-scale recalls.
But what sets these recalls apart and why are they closely scrutinized? To delve deeper into these questions, let’s analyze the recall data from the National Highway Traffic Safety Administration (NHTSA).
Recalls, while a cause for concern among investors, do not have long-term impacts on auto makers. They are simply a part of the process that both auto makers and the NHTSA undertake to ensure the safety of all vehicles on U.S. roads, regardless of their manufacturing date.
In the last two years alone, major U.S. auto makers have recalled around 46 million vehicles. Interestingly, while Tesla accounts for only 1% of the total light vehicles on U.S. roads, it represents a staggering 15% of all recalls.
However, there is a crucial distinction to be made. Over 90% of Tesla’s recalls are related to software updates.
One of Tesla’s most recent and widely covered recalls, which even earned a spot on the NPR weekly news quiz show Wait Wait Don’t Tell Me, affected over two million cars. Following an investigation by the NHTSA, Tesla updated the software that controls warning signals for their driver assistance features to ensure the system is not misused.
This recall stands out as Tesla’s largest ever, encompassing virtually all the cars they have sold in the U.S. since their inception. Addressing safety concerns related to driver assistance products is undeniably vital. However, it’s worth noting that any safety issue can lead to a recall. In fact, Tesla’s second-largest recall involved adjusting window closing pressure exerted by a closing window.
Hardware Recalls in the U.S.: A Closer Look
Hardware recalls are a common occurrence in the automotive industry, aiming to address safety concerns and ensure the well-being of vehicle owners. However, not all hardware issues get fixed promptly. In the United States, Tesla has consistently had the fewest hardware-based recalls, accounting for only 1.6% of the total recalls over the past two years. On the other end of the spectrum, Ford accounted for the highest number of hardware-based recalls, making up approximately 38% of the total.
The Challenge of Hardware Recall Compliance
While Tesla stands out with its low hardware recall rate, their compliance in rectifying these issues is not remarkable. According to NHTSA data, approximately 60% of the cars affected by Tesla’s hardware-based recalls have been fixed. In contrast, compliance with software-based recalls is far higher, nearing the 100% mark.
The Impact on Stock Prices
Most recalls do not significantly impact stock prices for automakers, including Tesla. Only recalls involving substantial safety risks or with multi-billion dollar expenses tend to affect stock performance.
Interestingly, even when impactful recalls occur, they may still not directly impact the auto maker’s shares. For instance, the costs associated with the Chevy Bolt battery recall in 2021 were primarily borne by LG Energy Solution. Furthermore, a Japanese supplier faced bankruptcy due to an airbag recall that affected millions of vehicles back in 2014.
Stock Performance Comparison
As of Monday trading, Tesla’s stock has shown impressive growth over the past year, outperforming both the S&P 500 and Nasdaq Composite. Tesla’s shares exhibited a staggering 69% increase during this period, while the S&P 500 and Nasdaq Composite saw respective rises of 24% and 40%.
Nevertheless, like other automotive companies, Tesla has faced challenges due to higher interest rates and a slower growth rate in electric vehicle demand within the United States. General Motors’ stock showed a more modest increase of around 1% over the past year, while Ford experienced growth of approximately 3%.
However, Tesla’s shares took a significant hit in late 2022 when Elon Musk sold large amounts of stock to fund his acquisition of X. This led to a drop of over 60% from mid-April to year-end. In comparison, the S&P 500 experienced a decline of about 13% during the same period.
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