Most stocks are taking another leg lower today, following yesterday’s Federal Reserve interest rate hike. This was the Fed’s third-consecutive 75 basis point (0.75%) move. That said, Tesla (NASDAQ:TSLA) is falling harder than the overall market today. At the time of writing, TSLA stock has sunk nearly 4% as investors price in company-specific news.
Today, reports are circulating that Tesla has recalled approximately 1.1 million vehicles due to a manufacturing issue. An automatic reversing system for the windows in Tesla vehicles may not react correctly after detecting an obstruction. Accordingly, with the potential for passengers to have their fingers pinched by their cars’ windows, the National Highway Traffic Safety Administration issued a report saying, “these vehicles fail to comply with the requirements of Federal Motor Vehicle Safety Standard number 118, ‘Power-Operated Window Systems.'”
This news, along with increasingly bearish sentiment in the markets, appears to have investors taking a more defensive posture today. Let’s dive into what to make of this news.
Why Is TSLA Stock Falling Today?
Like other auto manufacturers, Tesla has been hit by a number of recalls over the years. As noted by Tesla bull Fred Lambert in a recent Elektrek article, most of these recalls have been resolved with simple over-the-air software updates. This most recent issue will also be reportedly resolved via a software update as well.
Accordingly, bulls may have a point that the headlines put forward in the media may be misleading. While any sort of potential hazard that could cause injury ought to be taken as a big deal, something that can be solved by a software update, and doesn’t require a vehicle to visit the shop, really can’t be “recalled.” Accordingly, this game of semantics is one that continues to polarize the bulls and bears of TSLA stock.
Thus, perhaps broader macro factors such as rising interest rates are what investors should watch more closely with TSLA stock. After all, while Tesla is profitable, this is still a high-growth name trading at an extreme multiple. Should the overall demand for high-priced luxury goods come down, Tesla’s growth could dwindle considerably. After all, the market for SUVs priced at more than $125,000 is limited and may shrink, if we see the kind of economic slowing the Fed suggests is likely.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.