When
Tesla
recalls cars it gets a lot of attention. The reasons are easy to understand. Tesla is the most valuable auto maker on the planet led by the richest man on the planet. Tesla recalls typically involve large numbers, too.
Understanding what the recalls mean for Tesla’s stock or brand image, however, is very different from understanding why they are covered so closely. Barron’s looked at recall data from the National Highway Traffic Safety Administration, or NHTSA, to help answer the harder-to-answer questions.
While recalls generate some alarm for investors, they rarely have lasting impacts on any auto maker. Recalls happen. They are part of the process auto makers and NHTSA undertake to keep all the cars on U.S. roads safe, no matter when they were manufactured.
Over the past two years, major U.S. auto makers have recalled some 46 million vehicles. Tesla appears to punch above its weight, though. The electric vehicle giant only accounts for about 1% of all the light vehicles on U.S. roads, but it accounts for 15% of all recalls.
Sounds serious, but there is a key difference. More than 90% of all Tesla recalls involve software updates.
Tesla’s most recent recall—which received ample media coverage, including a question on the NPR weekly news quiz show Wait Wait Don’t Tell Me—involved more than two million cars. Tesla, after an investigation conducted by NHTSA, updated software controlling warning signals for Tesla’s driver assistance features to better ensure its systems won’t be misused.
That was Tesla’s largest recall ever, updating effectively all the cars they have ever sold in the U.S. Warning signals for driver assistance products feel like a worthy safety issue to address. Any safety issue can generate a recall, though. Tesla’s second-largest recall adjusted window closing pressure exerted by a closing window.
Software-based recalls are primarily a Tesla thing. It runs the largest fleet of connected vehicles in the U.S. Among the rest of the auto makers studied—including
Toyota Motor,
Honda Motor,
General Motors,
Ford Motor,
Stellantis,
BMW,
and
Hyundai Motor
—only about 16% of recalls involve software updates. Many of those updates still happened at a dealer.
Most recalls in the U.S. still involve a hardware issue fixed by a car dealer. Tesla accounted for the fewest hardware-based recalls over the past two years, about 1.6% of the total. Ford accounted for the most hardware-based recalls at about 38% of the total.
While recalls are intended to improve safety, hardware issues don’t always get fixed. About 60% of the cars covered by Tesla’s hardware-based recalls have been corrected, according to NHTSA data. The compliance with software-based recalls is close to 100%.
Tesla isn’t alone with hardware-based recall compliance, though. Ford and GM cars recalled for hardware-based issues get fixed at essentially the same rate. Hardware involves car owners as well as car makers. The owners have to care enough to take their vehicles in.
Most recalls simply don’t become investor-level events. That goes for Tesla or any other auto maker. The recalls that matter for stock prices are the ones that are for significant safety issues or that cost billions of dollars to fix.
Even the ones that matter don’t always affect the auto maker’s shares. Costs from the Chevy Bolt battery recall in 2021 were borne by
LG Energy Solution.
The 2014 air bag recall involving tens of millions of vehicles bankrupted a Japanese supplier.
Coming into Monday trading, Tesla stock was up about 69% over the past 12 months, better than the 24% and 40% respective rises of the
S&P 500
and
Nasdaq Composite
over the same span.
Higher interest rates and slowing growth of EV demand in the U.S. have weighed on all auto shares. GM stock was up about 1% over the past 12 months. Ford was up about 3%.
Tesla has faced the same issues, but shares were badly beaten up late in 2022 amid stock sales by Elon Musk to fund his purchase of X. Tesla stock fell more than 60% from mid-April, when Musk announced his bid, into year-end. The S&P 500 fell about 13% over the same span.
Write to Al Root at [email protected]
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