Tesla shares slide as vehicle recall compounds the problems


Tesla shares closed lower in US premarket price action yesterday after the company announced a vehicle recall. The shares have looked weak over the last few months amid concerns over increasing competition and its high valuations.

Tesla has recalled several thousand vehicles over the last few months. In the most recent recall, the company is recalling over 700 vehicles in China. These are Model 3 models that were imported into the country. The models were produced in 2019 in the Freemont plant. It is also recalling over 6,000 vehicles in the US.

Tesla vehicle recall in China

Towards the end of 2019, Tesla started producing the Model 3 in the China Gigafactory that came up in record time. The Elon Musk run company has gone up the manufacturing learning curve pretty fast and the quick ramp-up of the China Gigafactory is a testimony to its manufacturing prowess. Starting this year, Tesla is also delivering the China-made Model Y. The company is also using the China Gigafactory as an export base.

According to State Administration for Market Regulation, the recalled vehicles either have an issue with the seat belt which could increase the risk of injury to the passenger in a collision. The other models have a problem related to tyres which could increase the risk of collision. The recall could further dent Tesla’s reputation in China.

Tesla is facing a backlash in China

Tesla is facing a consumer backlash in China over alleged poor customer service. An irritated Tesla car buyer protested at the Shanghai Auto Show in April. Initially, the company ridiculed the allegations. However, it later took a more reconciliatory approach after the backlash in the country.

“The arrogant and overbearing stance the company exhibited in front of the public is repugnant and unacceptable, which could inflict serious damage on its reputation and customer base in the Chinese market,” the state-owned Global Times had said in April

While Tesla’s sales have soared, the company’s investments in the service network have not kept pace. In the past also, consumers outside of China have complained of poor customer service from Tesla.

Notably, the company’s sales in China tumbled in April which could partially be due to the backlash from consumers. In the past also, Chinese consumers have targeted US brands like Apple. However, these were short-lived.

Tesla is a major market for China where it competes with homegrown electric carmakers like NIO, Li Auto, and XPeng Motors.

Tesla to recall thousands of vehicles in the US

Meanwhile, Tesla is also recalling 6,000 Model 3 and Model Y in the US, the company’s filing with the National Highway Traffic Safety Administration showed. The models have a problem with the calliper bolts.

Model 3

Model 3 and Model Y are the best-selling models for Tesla. However, last month, the Model 3 lost the top slot in Consumer Reports. The company stopped using radar sensors in the vehicles and instead shifted to a camera-based system which lead to lower ratings for the car.

Bryan Reimer, a research scientist at MIT and founder of Advanced Vehicle Technology questioned the change. “Will the system fueled by vision data alone have an equal or better performance than what has been produced with a radar?” asked Reimer. He added, “If performance is not greater in the new system, we are taking a step backwards in efficacy and consumer transparency, negatively impacting safety.”

Meanwhile, Tesla also often faces complaints about fatal accidents related to the Autopilot. The company warns users that the FSD (full self-driving) option is not fully functional and drivers should keep their hands on the steering all the times. However, there have been instances where drivers were found to be inattentive when the Tesla car on Autopilot crashed.

Elon Musk

Meanwhile, in the past Musk was chastised by the US SEC over misleading tweets especially over taking Tesla private where he falsely claimed that he has secured funding for taking the company private. As part of the settlement, Musk had to leave his position as the chairman while he still continues to be the all-powerful CEO.

Over the last month, Musk has been tweeting frequently about cryptocurrencies which have led to sharp volatility in their prices. Also, he has been changing the opinion quite frequently on them. The SEC has again found problems with some of Musk’s tweets about Tesla’s solar business which has been sagging. However, so far, there are no reports of Musk attracting scrutiny for his comments on bitcoins and other cryptocurrencies. However, according to data from sentiment tracking company Awario, Musk’s reputation on Twitter has hit a low due to his attacks on bitcoins.

Elon Musk on bitcoins

Last month, Musk said that Tesla has “suspended vehicle purchases using Bitcoin” as the company is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”

Noelle Acheson, CoinDesk’s director of research refuted Musk’s claims. According to her, the use of fossil fuels in bitcoin mining is falling and not rising as Musk claimed.

Tesla shares fell over 5% lower in US markets yesterday. The shares have lost over 17% so far in 2021 even as legacy automakers like Ford and Volkswagen have surged. As legacy automakers proceed with their vehicle electrification plans, many investors are questioning the high valuations of pure-play electric vehicle companies. The sharp fall in Tesla shares has also cost Musk his position as the world’s richest person which he had briefly snatched from rival billionaire and Amazon’s CEO Jeff Bezos.


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About Mohit Oberoi PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation. Mohit has also written for Market Realist, The Economic Times, Wall Street Desk, and Talk Markets.

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