Tesla
stock was down in early Friday trading. No, not because of vehicle recalls. There are better reasons why the stock has been weak recently.
Early Friday,
Tesla
stock was down 1.9% while the
S&P 500
and
Nasdaq Composite
were up 0.2% and 0.6%, respectively.
It’s tempting to blame the move on recalls, but that would be a mistake. Yes, the numbers can be jarring. Tesla just recalled some 2.2 million vehicles in the U.S., which is essentially all the Tesla vehicles on U.S. roads. The issue is that “warning lights with a smaller font size can make critical safety information on the instrument panel difficult to read,” said the notice posted on the National Highway Traffic Safety Administration’s website.
The font has to be at least an eighth of an inch in height. The agency said Tesla’s font had been one sixteenth of an inch high. Tesla didn’t immediately respond to a request for comment.
It’s serious enough to change, but the recall didn’t come from customer complaints or accidents. On Jan. 8, NHTSA told Tesla its font was too small after conducting a compliance audit. That is just the system designed to keep cars safe.
As Barron’s has written many times, tens of millions of cars are recalled each year. Tesla’s recalls get more attention because it is the world’s most valuable auto maker, led by Elon Musk, one of the world’s richest people.
(Musk’s title of world’s richest is in flux after a Delaware judge nullified his 2018 pay package, wiping out some $50 billion in wealth. The Tesla board, however, will likely have to remedy the situation with a new pay package.)
Tesla recalls can often involve large numbers. That is because the company has the largest fleet of connected vehicles in the U.S. It fixes most minor issues—including font size—with over-the-air software updates.
More than 99% of all Tesla recalls are fixed with software updates. Barron’s finds that Tesla runs into hardware-based recalls about as often as any other auto maker.
Tesla investors also receive another potential shock from NHTSA. The agency has opened an investigation into the loss of power steering in model year 2023 Tesla Model 3 and Y vehicles. Investors should note that investigations precede recalls in the automotive safety world. Once NHTSA identifies an issue, often from questionnaires or complaints, they determine if there is an issue that needs fixing.
NHTSA started looking at the power-steering issue in July 2023 after ”receiving 12 Vehicle Owner Questionnaires reporting [a] loss of steering control in model years.”
NHTSA has initiated 11 investigations so far in 2024 after starting 66 in 2023. This year’s investigations involve Tesla, Ford Motor,
Kia,
and
Stellantis,
among others. Issues range from power steering to fuel pump performance to vehicle braking.
Investors should watch out for issue, but remember that NHTSA is always looking to improve vehicle safety.
The bigger issue for Tesla might be Ford’s January delivery results. Battery electric-vehicle sales were down that month about 54% from December, and down about 11% year over year. Ford delivered some 4,700 battery-electric vehicles in January.
Weak sales will fuel concerns about slowing overall battery-electric vehicle sales growth. Americans bought about 1.2 million all-BEVs in 2023, a record, and up roughly 45% compared with 2022.
Ford stock is down 0.1%, while shares of EV makers
Rivian Automotive
and
Lucid Group
are off 2.4% and 5.7%, respectively.
Another issue for Tesla on Friday might be related to hazardous waste. Tesla has agreed to pay $1.5 million—a relatively small penalty for the company—to settle allegations over the company’s handling of hazardous materials including oil, lead acid batteries, antifreeze and diesel fuel at as many as 101 sites across California. MarketWatch reported the lawsuit had been filed by 25 California counties earlier this week.
This comes amid a difficult start to 2024 for Tesla. EV sales in China have been slow to start the year, conflict in the Middle East has hampered production at its German plant, and Tesla has continued to cut vehicle prices to spur demand.
All that has caused 2024 earnings estimates to fall. Wall Street now expects 2024 earnings per share of $3.12, according to FactSet; at the start of 2024, that number was $3.81.
That is the best reason to pin Tesla’s weak stock performance on—earnings matter far more than recalls. Coming into Friday trading, Tesla stock was off about 24% year to date.
Write to Al Root at [email protected] and Rupert Steiner at [email protected]
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