About 2 weeks ago I wrote a post about a possible recall. In a letter the NHTSA mentioned the number of 158k cars to Tesla (TSLA). That many cars were equipped with the Tegra 3 processor, which the NHTSA was complaining about, after a thorough investigation.
The operational implications are huge since this is such a large part of all cars Tesla has ever sold. Moreover it implies Tesla has to recall similar cars in Europe and China as well. In my post from 2 weeks ago I estimated that would be about 70k cars. This was a rough estimate: I thought Tesla would have sold 2/3 of the model S and X in the US and the rest in Europe and China. However this estimate implies more of these cars were sold overseas than in the US. Note that Tesla has already decided it will do a similar recall in the UK. See here. As far as I know it was not disclosed how many cars Tesla is going to recall in the UK. It makes sense that more recalls will follow, for example for suspension issues. See here.
I do not think Tesla has enough capacity in its service centers to do the recall in a reasonable time. Therefore this recall means Tesla drivers will have a poorer service experience for the many other defects occurring with their cars. Any buzz around poor service (worse than it already is) will not be good for new sales.
Against the NHTSA Tesla argued that in technologically advanced cars like theirs not all components are meant to last the full lifetime of the car. See also here, and Tesla's response letter. How many other components last only 5-6 years? Indeed electronics have finite life time. But other brands do much better. For instance in my previous car the dashboard electronics, so a similar component, had to be replaced only after 14 years. See also here.
Tesla and bulls buried the recall news under other news:
- an upgrade from $810 to $880 from Morgan Stanley. The analyst did not ask questions on the conference call. He did not bother about recall risk with $14 price target increase from core auto (more than $15k per car of production capacity). Moreover he adds $32 to his price target from Energy despite hardly any revenue and negative gross profit, see here.
- An upgrade from Piper Sandler to $1200. Based on what? From the SA news item it seems the analyst thinks there are still much bigger fools. In general I agree momentum is a good reason for having a small position short term. But not for large positions. Too risky, especially with Tesla. You want to be out before the music stops.
- A news item about Tesla getting subsidy in Germany. With over a trillion in market cap (fully diluted) how is even $10 billion of subsidies more than a drop is a bucket?
- A "ungrounded rumor" that Tesla will buy 20% of BYD Company (OTCPK:BYDDY) for $36 billion. Let's face it: Tesla does not have the cash. Any other company would raise tens of billions of cash, but not Tesla. Musk is too concerned about the share price.
It does not matter until it matters. I think the moment that it all matters will come soon. My opinion on Tesla is strong sell.
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