By Al Root
News of a recall seems to have dragged down Tesla stock in Wednesday trading. Recalls, however, are a fact of life in the car business, and investors shouldn't overreact.
Tesla is recalling nearly 6,000 vehicles due to loose bolts, according to the National Highway Traffic Safety Administration, or NHTSA, and as first reported by Reuters. The NHTSA notice
There aren't many other factors to pin daily declines on, such as Wall Street analyst reports or price changes. But Tesla shares fell 3.1% in afternoon trading to $604.35. The S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite, for comparison, were all about flat.
Wiping off almost $20 billion in market capitalization for loose bolts, however, feels excessive, for a couple reasons.
First, the issue associated with this recall seems like a relatively easy repair. According to the NHTSA website, loose brake caliper bolts could come in "contact with the rim," causing a loss of tire pressure and "increasing the risk of a crash." The fix: "Tesla Service will inspect and tighten, or replace the caliper bolts as necessary, free of charge."
According to Reuters, the recall affects certain 2019-2021 Model 3 vehicles and 2020-2021 Model Y vehicles. Tesla didn't immediately respond to a request for comment about the recall or the cost to fix.
Second, recalls are common for all auto makers, as a check of the NHTSA website shows.
Of course, recalls shouldn't be dismissed entirely, just taken in stride. After all, they certainly can matter to a stock, though more so when they affect many cars, involve actual accidents, and are costly to fix. The Takata air bag recall that began back in 2008, for instance, bankrupted the Japanese auto parts supplier. But that recall involved tens of millions of vehicles.
Recalls can impact consumer perception, too. "Most recalls are immaterial, but if left to linger in the press, a recall can damage brand image," says Benchmark analyst Mike Ward. He doesn't cover Tesla stock, but covers other auto makers and parts suppliers.
This, however, isn't the first Tesla recall reported on recently. Tesla recalled some vehicles in China back in October. In the U.S., Model X vehicles SUVs were recalled in February 2020. However, the recalls, to this point, haven't become issues on quarterly management conference calls with investors.
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(END) Dow Jones Newswires
June 02, 2021 15:35 ET (19:35 GMT)
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