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Tesla Is Off 2% On News Of Product Recall

Trade Tesla Shares Your Capital Is At Risk
Updated 31 Dec 2021
Tesla car shop battery charge
  • Tesla is to recall near 500,000 vehicles to correct manufacturing faults
  • This is not a killer blow but it does emphasise the difficulties of manufacturing at scale
  • It’s how many times this happens which matters To Tesla

Tesla Inc (NASDAQ: TSLA) stock is off 2% as news breaks about a product recall of some 500,000 of the company’s cars. Some 350,000 of the Model 3 and another 119,000 of the Model S need to be called in to be checked.

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Of those to be called in by Tesla some 14% of the Model S are thought to suffer from the actual fault and only 1% of the Model 3. But all do need to come in to be checked which is itself an expensive operation. The recall announcements by Tesla are here and here. The specific repairs that need to be made don’t seem all that serious but at least one of them could lead to dangers of a crash if unrepaired.

Also Read: 3 EV Stocks for 2022

Which isn’t really quite the point. What is the point is one of the weaknesses in the entire Tesla story. Perhaps Elon Musk and his crew will be able to work through this and perhaps they won’t – this has always been part of the bet about Tesla.

Sure, we can all buy into the idea that Musk is a genius entrepreneur, which he is. It’s also true that we can see the EV revolution taking place around us. We really are moving, as a society, away from the internal combustion engine. But that still leaves us with a further consideration about Tesla. Which is that mass manufacturing is really hard, Really, really, hard.

The other car companies – the volume manufacturers – like Ford and VW and so on, this is in fact their prime differentiator. They have been producing millions of vehicles a year for decades now. The thing they know how to do is to do this reliably and in volume. True, this is less so for the American factories, the build quality of American cars has long been lower than that of European and especially Japanese. 

But in order to break into the truly mass market, this is what Tesla has to master – mass manufacturing to a consistent level of quality. Among analysts of the car industry, this has always been the most difficult thing for them to believe. That Tesla would be able to scale up production while also getting to the necessary levels of product reliability.

Part of the importance here is simply that such recalls cost money. But another part is that image – people do tend to turn away from buying something with a reputation for being unreliable. Something that becomes a danger for Tesla as those mass manufacturers turn their attentions to the EV market. Tesla doesn’t want to be losing reputation just as VW enters the mass market given VW’s reputation for engineering excellence. 

Some product recalls are just an unfortunate fact of life. But too many does begin to tarnish a brand. Tesla’s stock price could well suffer from any more of these.