Al Root
Tesla made headlines recently with another large recall. Investors should pay attention to this one, but not for the reason they might assume.
On Dec. 17, the electric-vehicle maker recalled 694,304 vehicles to correct a potential error with the tire-pressure monitoring system. An indicator light might not remain illuminated, "failing to warn the driver of low tire pressure," says the notice from the National Highway Traffic Safety Administration.
It is the latest in a series of big recalls by Tesla. Through late December, Tesla has had 15 recalls affecting some 5.1 million vehicles in 2024.
What is interesting about the latest recall is that NHTSA changed the form of its notification to include the statement "software update repairs recall." The new language differentiates between recalls to fix hardware and those meant to update the computer programs that are playing an increasing large role in how cars operate.
NHTSA told Barron's the updated communication policy took effect in mid-December. The Tesla recall appears to be the first to be labeled as a software fix.
The shift, which adds a bit more context for investors following the recall process, is also likely to make Tesla shareholders happy. Anyone who has followed the stock for a while knows that Tesla's big recall numbers generate catchy negative headlines, even though most amount to little more than a regular software update.
Neither the software updates nor the hardware-related recalls significantly affect the stock, for good reason. Recalls are simply part of the system for keeping cars on the road safe and operating efficiently.
Most car owners have an idea of how the recall process works. When they take their vehicle in for service, the agent tells them there is an open recall and something is replaced or corrected free. Owners typically keep driving the cars until the work is completed, and many don't realize a recall has been issued until they take their vehicle to the shop to address other issues.
For auto makers, recalls are an element of doing business that is reflected in the warranty expenses they record every quarter.
Through late December, about 34 million vehicles were recalled in 2024. Major auto makers, led by Tesla at 5.1 million recalls, accounted for about 80% of the total. Ford Motor and Stellantis each recalled more than four million cars, while Toyota Motor's total fell to some 1.2 million cars from 4.3 million in 2023.
While Tesla had more recalls than its rivals, about 99% of them were fixed with relatively low-cost over-the-air software updates. Ford, for comparison, recalled some 4.4 million vehicles this year, but only about 30% involved software-related fixes, and most of those still required a trip to the dealer.
In other words, Tesla recalled about 39,000 cars to correct hardware- related issues, while the comparable number at Ford was about three million vehicles.
Software-related recalls tend to involve big numbers. The 10 largest 2024 software-related recalls, three of them on Tesla vehicles, affected more than nine million cars. That is about 900,000 cars per recall, while the average number of cars affected in the more than a thousand recalls this year is closer to 30,000.
The largest recall of the year, which fixed the font size of warning labels on the center touch screen, affected some 2.2 million Teslas. Yes, font sizes should be correct, but the difference was difficult to detect with the naked eye.
And recalls can matter to an automotive investor. Those that are large, costly, and pose an immediate safety risk to drivers can affect stocks, but those situations are rare.
While software-related recalls will grow as cars get smarter, there is an upside for investors and the driving public. Broadcasting a fix to thousands of cars is less expensive than repairing individual vehicles, and over-the-air updates are completed almost 100% of the time, according to NHTSA tracking. The average completion rate for hardware-related recalls is closer to 50%, leaving unresolved problems about half of the time.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 27, 2024 17:25 ET (22:25 GMT)
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