Tesla (TSLA) faces yet another public relations disaster in China, as the EV maker said Saturday it must recall nearly all of the 285,000 cars it has delivered in the country over recent years to implement a software fix related to its cruise control. Tesla stock rose.
The safety issue is related to Tesla’s cruise control feature, which China’s state regulator says can be activated automatically, potentially leading to crashes from sudden acceleration, over the last year.
The recall involves about 211,000 locally produced Model 3 vehicles and 36,000 imported ones, along with 38,000 Model Ys. In most cases the recall is expected to be done remotely via an online software update to the car’s active cruise control feature.
In a Sunday note to clients, Wedbush analyst Daniel Ives said the recall is “a moment of truth” for Tesla, which has battled negative PR issues around Autopilot. He added that it’s “a black eye moment” for CEO Elon Musk in this key region.
China is expected to account for 40% of global deliveries for Tesla by next year, Ives says.
“China demand is a key driver for the long term Tesla growth story and the company must play nice in the sandbox with Beijing around safety issues, otherwise it will be an impediment toward achieving its goals/targets in (that) country,” Ives wrote.
Ives has an outperform rating and $1,000 price target on Tesla stock.
Its relative strength line is ticking upward again in recent days. Tesla stock is still down 23% from its all-time high of 900.40 achieved intraday on Jan. 25.
Tesla Q2 Deliveries
The recall likely won’t affect Q2 deliveries, which Tesla is expected to report later this week. The report will give some clues about June China sales, although actual China sales data likely won’t come for another week or two.
FactSet analysts expect deliveries of 198,300 vehicles in Q2, a 7% increase from last quarter and more than double the year-ago figure of 90,900. FactSet estimates Tesla will deliver 193,900 Model 3/Y vehicles and 4,400 Model S/Xs.
Tesla delivered 25 Model S Plaid cars at a June 11 event at its Fremont, Calif. plant.
China-based rivals Nio, XPeng and Li Auto may also report June deliveries later this week. Nio has said it expects Q2 deliveries to be flat, ranging from 21,000-22,000, blaming chip shortages.
Li Auto is optimistic Q2 deliveries will top guidance of 14,500-15,500, despite a chip shortage affecting the entire industry. And Xpeng expects to deliver 15,500-16,000 in Q2, an 18% increase from Q1.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
YOU MAY ALSO LIKE: