Elon Musk’s Tesla arguably had a fantastic 2020 regarding profit margins and stock, however, as of late the headlines are more concerned with the 36, 126 cars (of the Model S and X) they are having to recall in China due to technical failures. A significant number of vehicles were recalled in the United States and have now been extended over to China. The cars being recalled were made between 2013 and 2018 in California and were later exported over China.
Tesla car system
As aforementioned, Tesla’s Model S and X electric vehicles have been recalled in China due to technical failures. Tesla vehicles feature a media control unit (MCU) which enables the driver to see and operate their entertainment, navigation, air conditioning, and other vehicle features. The MCU is consistent with several processors, memory devices, and other technical opponents which aids the vehicles in having a limited “write-cycle”; which is “the measure of endurance for a solid-state drive and most flash-based storage devices”. When the write-cycle fails, owners of the vehicles can endure unsettling touch-screen blackouts whilst driving and lose access to navigation when on the road or whilst parking. Occasionally, drivers can reboot their systems, but some lose control of the entirety of their system.
Preceding the fact that the recall started in the United States with 135,000 vehicles being recalled; Tesla induced a ‘warranted expansion’ to refund their American residing customers who had paid out of warranty and out of pocket to replace their media control units. Further down the line, Tesla opted for a voluntary recall in the U.S. after pressure from the National Highway Traffic Administration.
Growth of China
China is the world’s largest car market and the Chinese government heavily promotes the adoption of electric vehicles. Tesla’s on-going investigation regarding the quality issues of their vehicles could not have come at a worse time for the world’s most valuable car company. Chinese electric vehicle start-up, NIO, revealed a fourth production model last month alongside Li Auto and Xpeng who have new models in production.
The hitch in Tesla’s success story may cost Tesla in the future. As it stands, investors are not pleased with the current share price; some believe the stock is currently over-valued. According to Forbes, the company’s financial standing does not warrant the recent share price; the price of the stock is currently trading at 200 times next year’s profit which may sound great, but some investors worry that the Standard & Poor (S&P) 500 is currently being overvalued because of the price-earnings ratio.
The stock of Tesla isn’t the deciding factor concerning the prosperity of the company. Morgan Stanley predicts that 2021 will be no different from the success and growth which Tesla reached last year. He adds that Tesla stock is predicted to reach new highs due to the mass amount of growth and revenue they are predicted to achieve during this year. Tesla aims to deliver 785,000 vehicles in 2021 which is a smaller figure than the 792,000 goals of last year. Additionally, Tesla has recently enabled its customers to be able to use Bitcoin currency to fund the vehicles; this could work to be advantageous for Tesla and could arguably gain more traction with the likes of new investors and new customers.
Conclusion
Conclusively, Tesla’s recall of vehicles in China is considerably alarming due to the considerable number of cars having been recalled due to technical issues. System failures that control almost the entirety of the vehicle and the safety aspect of the vehicle are a large cause for concern, however, the future of Tesla does not solely interest the future of Tesla.
Having acknowledged the technical failures and the aggressive increase in the competition this will bring for Tesla, a large aspect of Tesla’s future lies in the stock prices of which have been recognized to be over-valued in the eyes of investors. This year is predicted to reach better heights for Tesla than last year, however, it is uncertain how the recall will affect the aforementioned predictions regarding sale and revenue projection.
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