Tesla Inc (NASDAQ:TSLA) is plunging hard Thursday after the company announced a product recall of 53,000 Model S and Model X vehicles. TSLA stock is down 1% on the day, and more than 2% from its intraday highs, remaining firmly within a monthlong trading range.
Specifically, Tesla is recalling some of its Model S sedans and Model X crossovers for faulty electric parking brake assemblies on reports a small gear might fracture, preventing the brake from releasing. Tesla reports that about 2% of the recalled vehicles have the faulty gear.
This isn’t the first mechanical issue the company has faced.
Separately, a group of owners have filed a class-action lawsuit for allegedly mischaracterizing the capabilities of the Autopilot 2 feature as safe and “stress free” when instead it is “essentially unusable and demonstrably dangerous.” Autopilot 2 went on sale last October as a $5,000 option. The first-generation Autopilot was launched in 2014.
TSLA stock has been on the move largely, enjoying a massive near-30% rally out of its March low thanks to ramping vehicle production and a recent product tease announcement from CEO Elon Musk, hinting at the unveiling of the “Tesla Semi” in September, a Tesla pickup truck in 18 to 24 months and a new roadster convertible.
This confirms the “Master Plan” road map Musk unveiled last summer.
Is Tesla Stock in Trouble?
As a reminder, Tesla shares are up roughly 70% since December on growing excitement over the looming launch of the Model 3 sedan later this year.
Never mind lingering problems including a massive cash burn rate, constant need for capital raises and equity dilution, and intensifying competitive pressures. General Motors Company’s (NYSE:GM) own Chevy Bolt, for instance.
Execution risks could hardly be higher: The company is targeting the production of 500,000 vehicles next year, up from just 84,000 last year. And valuations are eye-watering: Tesla’s market capitalization hit $51.2 billion earlier this month, eclipsing GM’s $51.1 billion and Ford Motor Company’s (NYSE:F) $45.1 billion valuations.
Much of the rise in TSLA has been driven by the allaying of capital raising fears after China’s Tencent Holdings Ltd (OTCMKTS:TCEHY) acquired a 5% stake in the company. Summarizing the dynamic behind the share price rise, in a recently analyst note Piper Jaffray assigned a $368 price target on the admittance that rational arguments by the TSLA bears “probably won’t matter.”
Tesla will next report results on May 3 after the close. Analysts are looking for a loss of 78 cents per share on revenues of $2.59 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
