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This week, the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) sent a letter to Tesla’s legal department requesting a recall of 158,000 Tesla vehicles.
The NHTSA has found that some media control units (MCU) are defective, which poses a safety risk as it impacts the functioning of the vehicle’s backup cameras and defrosters. The problem lies in the memory chips used in MCUs in the Model S produced between 2012 – 2018 and the Model X SUV produced between 2016 – 2018.
The display screens have the Nvidia Tegra 3 processor installed with an integrated storage device that is accessed whenever the vehicle starts up. However, once capacity on this device is reached, the MCU fails. The NHTSA received reports from consumers back in June 2020 and started an investigation, which has now resulted in the vehicle recall.
Last year, Tesla tried to address these issues through its over-the-air software updates but the NHTSA decided it was not enough to mitigate the risks. In the letter to the US-based EV manufacturer, the NHTSA stated the following:
Failure of the media-console units (MCU) was "a defect related to motor-vehicle safety" because of a range of safety issues, including:
- The loss of rear-view camera images and controls for heating, air conditioning and defrosting.
- The lack of a functioning windshield defogging and defrosting system may decrease the driver's visibility in inclement weather, increasing the risk of a crash.
- The potential loss of audible chimes and alerts associated with indicators and the driver-assistance Autopilot feature.
Tesla has been asked to initiate the recall by notifying “all owners, purchasers and dealers of the subject vehicles of this safety defect and provide a remedy".
The NHTSA has found over 12,000 customer complaints, reports, and warranty claims related to the display screens.
Tesla has until 27 January to respond and if the car company feels a recall is not necessary, it will have to explain why. If this turns into a dispute, the NHTSA is within its rights to organize a public meeting as well as take legal action by pushing the matter over to the Justice Department.
How will the recall affect Tesla’s share price?
While a product recall can be bad news, it’s not necessarily devastating and it’s not a given that a recall will significantly impact the share price. It will depend on the severity of the problem and the costs involved to resolve it, and it would matter if there were any serious injuries directly linked to the issue.
While it may cause a bit of uncertainty with investors, Tesla’s share price activity is currently showing that nobody is panicking. In the manufacturing industry, recalls do happen and it has happened before with Tesla. The 2015 Model S sedan has in fact been issued with four recalls even though the NHTSA had given that particular EV a five-star safety rating. The same happened with BMW Germany’s 2015 X3 SUV models, which were recalled three times while also holding a five-star safety rating from the NHTSA.
Investors are more than likely to save their concerns for Tesla’s pending fourth-quarter earnings report expected to be released at the end of this month where analysts will look for a $1 in per-share earnings. Over and above this report will be the 2021 delivery targets that Tesla CEO Elon Musk should be announcing soon. Analysts have estimated the next annual delivery numbers are projected to be between 836,000 to 860,000 vehicles for 2021.
Regardless of the recent news on an issued recall, Tesla stock started the new year in a strong position and it’s already up 20% year to date after it’s incredible rise of over 740% in 2020.