Tesla’s recall of 285,000 cars in China is a ‘black-eye moment’ for the EV maker – but that won’t derail its strong prospects, Wedbush says

FILE PHOTO: Tesla Inc CEO Elon Musk speaks at an opening ceremony for Tesla China-made Model Y program in Shanghai, China January 7, 2020. REUTERS/Aly Song
Tesla Inc CEO Elon Musk speaks at an opening ceremony for Tesla China-made Model Y program in Shanghai.

  • Tesla’s recall of most of its cars delivered in China won’t derail its growth prospects, according to Wedbush.
  • Analyst Dan Ives said the incident is a clear “black-eye moment” for Tesla, already having reputational issues in China.
  • China is one of Tesla’s key markets, and is expected to represent 40% of deliveries for the company by 2022.
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Tesla’s China recall is a temporary blip for investors and doesn’t indicate long-term damage to the electric-vehicle maker’s growth story, Wedbush analyst Dan Ives said, .

The EV maker will implement a voluntary “recall” by remotely updating software in around 285,000 Model 3 and Model Y cars to fix safety issues, China’s vehicle safety authority said over the weekend.

The recall numbers add up to a majority of the vehicles Tesla has delivered to Chinese customers in recent years, Ives. said Sunday.

The Wedbush analyst described the incident as a clear “black-eye moment” for Tesla, and not news its stock bulls want to read. He said it’s another hit to the EV maker’s reputation in China, following a slip in orders, a fatal crash and CEO Elon Musk being forced to reject reports the country’s military had banned its cars.

China is one of Tesla’s most important markets, expected to represent around 40% of global deliveries for the company by next year.

“China demand is a key driver for the long term Tesla growth story, and the company must play nice in the sandbox with Beijing around safety issues, otherwise it will be an impediment towards achieving its goals/targets in country,” Ives said.

The autopilot systems in the affected cars can be activated accidentally, leading to a risk of crashes from sudden acceleration, China’s State Administration for Market Regulation said. Under a recall plan filed with the regulator, Tesla will update software on about 211,000 Model 3 vehicles made in China and 36,000 imported from the US. Another 38,599 Model Y vehicles will also get the software patch, which will begin to roll out Saturday.

“We believe this situation overall is a bump in the road and does not derail the near-term or long-term bull thesis for Tesla China, however going forward it needs to be a smoother road on autopilot safety otherwise the PR black cloud will continue,” Ives said.

The analyst reiterated an “outperform” rating for Tesla with a 12-month price target of $1,000. Tesla’s shares were trading 2.5% higher at $688 per share on Monday.

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Tesla falls after reports of fatal driverless car crash in Texas

tesla autopilot
  • Two men died on Saturday night in a fiery crash after their 2019 Tesla Model S failed to negotiate a curve.
  • Tesla’s stock fell as much as 6.5% on Monday after the news broke.
  • Tesla’s recent safety figures still show the carmaker is one of the safest around.
  • See more stories on Insider’s business page.

Tesla stock sank as much as 6.5% on Monday after reports of a fatal driverless car crash outside of Houston, Texas stirred investors.

Two men died on Saturday night when a 2019 Tesla Model S driving at high speed failed to negotiate a curve on a windy road in Spring, Texas.

Harris County Precinct 4 Constable Mark Herman said in an interview that, based on a preliminary investigation, there was no evidence anyone was at the wheel of the vehicle at the time of the crash.

“Our preliminary investigation is determining-but it’s not complete yet-that there was no one at the wheel of that vehicle. We’re almost 99.9% sure,” the constable said, per the Wall Street Journal.

The NHTSA has launched more than two dozen advanced driver-assistance-related investigations into crashes involving Tesla vehicles amid the company’s autonomous driving push.

The National Transportation Safety Board’s chairman, Robert L. Sumwalt, has also criticized Tesla on a number of occasions for their lack of compliance with regulators regarding self-driving tech.

In a 2020 NTSB meeting, Sumwalt said, “It is foreseeable that some drivers will attempt to inappropriately use driving automation systems. To counter this possibility, in 2017 we issued 2 recommendations to 6 automobile manufacturers. Five manufacturers responded favorably that they were working to implement these recommendations. Tesla ignored us.”

Just last week, Ford’s CEO also took a shot at Tesla on Twitter when announcing his company’s driverless tech, saying “BlueCruise! We tested it in the real world, so our customers don’t have to.”

Despite the recent crash, NHTSA investigations, and criticism from the competition, Tesla’s recent safety report shows its cars are some of the safest on the road.

In the first quarter of 2021, Tesla registered one accident for every 4.19 million miles driven when Autopilot was engaged. For comparison, The NHTSA’s most recent data shows there is an automobile crash every 484,000 miles on average in the US.

Even with a strong safety record, high-profile crashes like this one usually hurt Tesla’s stock.

The bearish fatal crash news also comes as Cathie Wood, one of Tesla’s biggest supporters, continues to sell shares.

Wood’s flagship exchange-traded fund, the ARK Innovation ETF, sold some 272,427 shares of Tesla last week. While Wood’s ARK Next Generation Internet ETF sold an additional 104,869 shares of the electric car maker.

As of Monday’s intraday high, the shares were worth roughly $271 million.

Tesla’s stock was down 3.62% as of 11:30 a.m. ET on Monday.

TSLA chart 4
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