The sell off today is a combination of macro and short-selling coordinate with FUD. Here is an article from "Briefing.com" that just showed up on my investment feed. I invite you to read it and notice how *intelligently* cleverly misleading it is. It's really good. Most everything is completely factual, and yet also blatantly dishonest.
Check out:
- The link between the China "recall" (software update) and the NHTSA investigation announced today.
- "Action taken by NHTSA is a huge ordeal, covering ~765,000 vehicles." If I were the author, I would have gone with "The recall applies to over 50% of Teslas ever produced."
- "At this point, it's virtually impossible to predict what the outcome will be..." but let me present some "plausible" predictions anyway.
- Weak (overall) Chinese economic data then linked to the bogus "shipment plunge" in July (export month for Shanghai). Suggesting this might be a result of covid (???).
- "What's more certain is that it does create a bit of an overhang on the stock as the process plays out."
About six weeks after China's State Administration for Market Regulation issued a major recall due to safety issues concerning Tesla's (TSLA) autopilot system, U.S. regulators have now opened an investigation of their own. Earlier this morning, the National Highway Traffic Safety Administration (NHTSA) disclosed that its reviewing eleven incidents in which TSLA vehicles crashed into first responder scenes where emergency lights, cones, flares, and illuminated road signs were present. In each case, drivers were using either TSLA's autopilot or Traffic Aware Cruise Control features.
Like the recall in China, which encompasses virtually every TSLA vehicle ever sold there, the action taken by the NHTSA is a huge ordeal, covering ~765,000 vehicles sold in the U.S. from 2014-2021. Models Y, X, S, and 3 are all included in the investigation.
At this point, it's virtually impossible to predict what the outcome of this investigation will be. It's plausible that the NHTSA will determine that a recall is necessary, but that may not be as damaging as it first sounds. Depending on what's revealed during the probe, it's possible that the solution will be to temporarily disable the autopilot system until owners can update with new software to remedy the issues. Rather than having to replace expensive parts and components for thousands of vehicles, reconfiguring a common software program should be relatively benign for TSLA.
Another potential result is that TSLA may need to change its marketing language revolving around autopilot. Although the name "autopilot" gives the impression that a driver is not needed, that is not actually the case. Autopilot does allow for vehicles to maintain speed and to drive within lanes produced by its Operational Design Domain, but drivers are still responsible for avoiding obstacles and evading nearby vehicles that cause dangers.
The NHTSA investigation isn't the only negative development today. A set of weaker-than-expected Chinese economic data for July also hit, including disappointing numbers for retail sales, fixed asset investment, and industrial production. The main takeaway from the reports is that economic growth decelerated from June, causing some concern that rising virus cases are starting to have an impact.
Given that China accounts for nearly a third of TSLA's business, an economic downturn there could create a headwind. In fact, there's already some evidence that sales may be slowing as July shipments in China plunged by 69% from June. An important caveat is that the company tends to export more cars early in the quarter. On a related note, SCMP reported today that TSLA delivered more than 8,000 Model Y cars from Shanghai to Europe, representing the first time TSLA has exported the SUV from its China facility. Overall, it's too early to determine whether TSLA is experiencing a slowdown in China, but next month's sales report will be more telling.
To conclude, it's difficult to forecast what the ultimate financial implications will be from the NHTSA's action. What's more certain is that it does create a bit of an overhang on the stock as the process plays out. The soft economic data from China also raises some red flags, although we note that TSLA shares soared throughout the lockdowns and accompanying economic collapse. From early March 2020 through year end, TSLA rocketed higher by ~725%. Unless TSLA's production becomes significantly disrupted, it's hard to imagine that a recall or a slowdown in economic growth will substantially derail the company given the robust demand environment.
PLEAS