Source: PaxForex Premium Analytics Portal, Fundamental Insight
Reportedly Tesla is about to recall more than 350,000 vehicles supplied with driver assistance software in reaction to government worries that the system could provoke accidents.
At first glance, the fix seems relatively simple. But it involves software that Musk said last year was "vital" to the company's survival. Of course, it could open the door to further questions about Tesla's autopilot systems.
Investors have no reason to get tid of TSLA stock based on this news. However, this is something that needs to be carefully monitoiored in the coming quarters.
In a recall notice issued yesterday, the National Highway Traffic Safety Administration (NHTSA) said Tesla's self-driving software package "may allow the vehicle to behave unsafely at intersections," adding that the system "may not respond sufficiently to changes in posted speed limits or inadequately account for driver adjustments to speed the vehicle to exceed posted speed limits."
In response, Tesla is voluntarily recalling the vehicles, planning to fix the situation through an over-the-air (OTA) firmware update. The vehicles subject to the recall are the Model S, Model X, Model 3, and Model Y equipped with the Full-Self-Driving beta.
Even though it is named "Full Self-Driving", it does not make a Tesla car fully autonomous, and the company has long dealt with questions about the marketing of the system and how owners use it. The software has become a lucrative addition for Tesla: The option currently costs $15,000, or $199 a month in the U.S.
Tesla did not comment in any way on the NHTSA notice. According to the notice, Tesla has specified 18 warranty claims that are likely to be related to the circumstances described by NHTSA, and the company is not aware of any injuries or deaths related to those conditions.
Oddly enough, Tesla stock barely reacted to the announcement, maybe due to relatively simple solution offered in the recall notice. Automakers regularly conduct recalls to fix a range of problems, and Tesla is no exception.
But that doesn't mean investors can relax and not monitor the situation. Autopilot or Full Self-Driving technology is a key part of the argument for Tesla and the main reason the company boasts a valuation that outperforms the rest of the industry. Musk said in a 2022 interview that it was "extremely important" for the company to address full autonomous driving, stating that "it's really the difference between whether Tesla is worth a lot of money or not worth anything."
In a statement, NHTSA said it would continue to monitor the recall to make sure Tesla's measures are effective and noted that a broader investigation of Tesla's software systems remains open and active. Government officials said they were concerned that the technology could force drivers to be less careful than necessary to ensure safety.
There is also a risk that Tesla will eventually have to invest in new equipment to meet the government's concerns, which could mean either a refund or a costly upgrade of hundreds of thousands of cars already on the road whose owners have purchased the service. And some of the conditions in the recall could make Autopilot less appealing to consumers, such as the language requiring Autopilot to limit the speed of Tesla cars according to a set limit.
Nothing in this news suggests that Tesla is winding down. But the company will have to survive this period of government scrutiny for the stock to reach the potential that some believe it has. In 2022, Cathie Wood of Ark Invest said Tesla stock could be worth as much as $4,600 apiece - more than 20 times its current price - by 2026, assuming robot cabs are in service by then.
Even in Ark's worst-case scenario, which puts Tesla's stock price at $2,900, autonomous revenues are expected to be about $50 billion by 2026.
As the government takes action, Tesla is likely to spend more time tweaking existing systems and less on further development, which means less chance of the company reaching Ark's futuristic goal by 2026. And that makes Tesla's other initiatives, including its cyber truck, even more, important for growth.
Tesla investors don't need to get out of the way, but they should be cautious given the challenges ahead.
As long as the price is above 187.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 201.45
- Take Profit 1: 217.00
- Take Profit 2: 235.00
Alternative scenario:
If the level of 187.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 187.00
- Take Profit 1: 176.00
- Take Profit 2: 166.00
