As it gears up for an important earnings report, Tesla (NASDAQ:TSLA) is facing more problems. Yesterday brought news that the company is facing a massive recall. According to Reuters, it will be recalling 54,676 Tesla Model Xs. The electric vehicles (EVs) in question were built within the last two years, ranging from 2021 to 2023. They are being recalled due to a problem with the vehicle controller and its inability to detect low levels of brake fluid and display the appropriate warning light. As is common for the company, Tesla has opted to address this problem via an over-the-air (OTA) software update. While there have not been any reported crashes related to this problem, TSLA stock is still struggling today.
Vehicle recalls don’t tend to keep an automaker’s stock price down for too long, if at all. But as Tesla prepares to report third-quarter earnings, all eyes are on the EV leader. Investors are waiting anxiously to see what kind of quarter the company has had.
What’s Happening With TSLA Stock
The recall news likely isn’t impacting TSLA stock too much today. As noted, powerful automakers can easily bounce back after this type of news. For Tesla, who often addresses these problems through OTA solutions, this is especially true. But as of this writing, TSLA stock is down more than 2% for the day after slipping in pre-market trading as well. All signs point toward market momentum sparked by negative investor sentiment ahead of the Tesla earnings report.
After a difficult week and an even harder month, Tesla could definitely use a positive catalyst. But given everything that we’ve seen so far this year, it’s hard to be too optimistic. The company has opted for several aggressive price cuts, and investors are about to see firsthand how effective they have really been at driving growth and demand. Additionally, while TSLA stock has performed well throughout the quarter, the company has significantly reduced its profit forecasts for it. As Bloomberg reports:
“The conflicting signals are the result of bets that the automaker led by Elon Musk will maintain its dominance in the fast-expanding EV market and emerge as a leader of self-driving cars and artificial intelligence. But Tesla’s rapidly eroding margins are raising doubts about the viability of maintaining sales growth by waging a price war.”
This means that all eyes will be on TSLA stock today as the company prepares to report earnings today at 5:30 p.m. after the close of markets. If the Q3 report reveals that price cuts haven’t had a positive impact, it will likely call Elon Musk’s leadership into question. It may also suggest to investors that demand for Tesla’s EVs isn’t as high as it should be. EV demand, in general, has been slumping as sales have fallen for luxury vehicle producers. If even lowering costs can’t compel consumers to keep buying Teslas, it will strongly imply that Tesla isn’t the industry leader it used to be.
The Road Ahead
Of course, Tesla could surprise investors and report better-than-expected earnings. But if it doesn’t, it will be a rough road ahead for the remainder of 2023. As InvestorPlace contributor Marc Guberti notes, the combination of the price cuts and Tesla’s high valuation presents a troubling scenario. If the company fails to meet Wall Street estimates for Q3, TSLA stock will likely plunge. Deliveries for the quarter have already come in below expectations. That and the recent recalls aren’t setting a positive tone as investors prepare for the Q3 report.
On the date of publication, Samuel O’Brient 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.
