EV maker Tesla (TSLA), which is reporting its Q3 earnings today, is recalling thousands of its vehicles in the U.S. because of fears that a battery fault could increase the risk of a crash. Tesla stock dropped in pre-market trading.
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Connection Issue
The U.S. National Highway Traffic Safety Administration (NHTSA) said Tesla was recalling 12,936 vehicles in the U.S. due to a potential battery connection failure issue in select 2025 Model 3 and 2026 Model Y vehicles, which could cause a loss of driving power.
The NHTSA said this could result in the driver losing the ability to accelerate the vehicle, increasing the risk of a crash.
Tesla said it will replace the affected battery pack contactor free of charge. It has identified 36 warranty claims and 26 field reports related to this condition as of October 7, but said it was unaware of any collisions, injuries, or fatalities linked to the defect.
This recall comes after Tesla launched the new Model Y at $39,990 in early October. The Model Y, along with a lower-priced Model 3, was part of Tesla’s strategy to offer vehicles with fewer features at a lower price point.
Probe Pattern
It also comes days after the NHTSA launched a probe into nearly 3 million self-driving Tesla vehicles after some ignored red traffic light signals and crashed into other cars.
The regulator said it was starting an investigation into 2.88 million Tesla vehicles equipped with the company’s Full Self-Driving (FSD) system because of the potential for traffic safety violations.
The auto safety regulator said that the FSD system, which is designed as a driver assistance feature requiring constant driver attention and intervention when needed, has “induced vehicle behavior that violated traffic safety laws.”
This is the latest in a series of actions taken by the NHTSA against Tesla. Only last month, it launched a preliminary investigation into the electronic door handles of the Tesla Model Y. The probe followed multiple complaints that children were trapped inside the vehicle because the doors could not be opened from the outside. Tesla said it is working on a redesign.
The NHTSA has also launched a probe into the EV giant’s delayed reporting of crashes involving its Autopilot and full self-driving (FSD) systems.
Why it Matters
The recall matters clearly to ensure the safety of Tesla drivers, but it also highlights a key risk for the company and its investors. That is the impact legal and regulatory issues can have on a company’s financial performance and reputation.
It is also another blow for the EV maker whose sales have struggled this year as a result of tougher competition and a loss of brand reputation given leader Elon Musk’s flirtation with right-wing politics.
Is TSLA a Good Stock to Buy Now?
On TipRanks, TSLA has a Hold consensus based on 15 Buy, 13 Hold and 10 Sell ratings. Its highest price target is $600. TSLA stock’s consensus price target is $365.82, implying a 17.35% downside.
