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Toyota Recalls Flagship EV Due to Wheel Issue
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Toyota Recalls Flagship EV Due to Wheel Issue

Story Highlights

Toyota suffers a setback in its initial bid to take on EV market leader Tesla. However, the challenging start may be a blessing in disguise as the Japanese auto giant can learn a new lesson.

Japanese auto giant Toyota (TM) is pulling its flagship electric vehicle (EV) model from the market due to a safety issue. Toyota shares slipped 1% in regular trading on June 23, following the recall announcement. However, the stock bounced back during the after-hours trading session, rising 1.64% to settle at $160.10. The stock has retreated 15% year-to-date.

The recall targets Toyota’s 2023 bZ4X SUV model, which hit the market less than two months ago. The car runs on battery power and can drive more than 250 miles on a single charge. The car’s starting price is $42,000.

Why is Toyota Recalling the 2023 bZ4X SUV?

The company has detected a safety defect related to the wheels of the car, stating that the car’s wheels could fall off unexpectedly. Toyota explained that the bolts connecting the wheel to the car can become loose and detach after the car has been driven for some time. 

The company has told customers not to drive the 2023 bZ4X until the problem has been corrected. Toyota has warned that the wheel coming off while the car is on the road could result in a loss of control of the vehicle and cause a crash. The recall covers about 2,700 units of the bZ4X, including 260 units in the U.S.

No Remedy for Now, but Drivers Can Relax

Toyota is still investigating the issue and has found no solution to the wheel defect at this time. However, drivers who purchased the bZ4X will get a temporary replacement car to use for now, as the problematic EV is taken back from them. 

What is Next for Toyota After Its EV Bid Stumbles?

The 2023 bZ4X SUV marked Toyota’s first direct attempt to wrestle control of the EV market from Tesla (TSLA). Therefore, the car’s recall comes as a setback to those efforts. However, the problem that Toyota has run into is not unique to it. For example, Ford (F) has also recently made several recalls, lately targeting its Mustang Mach-E model

As they make the shift to electric vehicles from gas-powered models, traditional automakers are generally running into teething problems. For Toyota, there is hope that it can adjust quickly and overcome these challenges given its many years of experience in the auto business. 

Wall Street’s Take

The Street is cautiously optimistic about Toyota stock with a Moderate Buy consensus rating, based on one Buy. The average Toyota price target of $200 implies 27% upside potential to current levels. 

Hedge Funds

The TipRanks Hedge Fund Trading Activity tool shows that confidence in TM is currently Positive, as four hedge funds increased their cumulative holdings of the stock by 181,600 shares in the last quarter.

Key Takeaway for Investors

Toyota is voluntarily recalling the 2023 bZ4X SUV before there is a major incident that could damage its EV profile. The growth opportunity in the EV market is huge considering that electric cars are considered a solution to climate change. The lessons learned from the bZ4X could help Toyota devise a stronger plan to counter Tesla and other EV competitors. Toyota aims to have EVs contribute to 80% of its car sales by 2030.

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