Electric vehicle maker Tesla’s stock dropped on Tuesday amid reports that the company is recalling about 12,000 vehicles over a communications software error that could lead to collisions.
The world’s biggest EV maker has recalled models S, X, 3 and Y sold since 2017 in the US, the National Highway Traffic Safety Administration (NHTSA), the US federal government agency that is part of the Department of Transportation, said.
“A software communication error may, under a certain sequence of events, result in false forward-collision warnings [FCW] and/or automatic emergency brake [AEB] event,” the safety recall report said.
“If the AEB system unexpectedly activates while driving, the risk of a rear-end collision from a following vehicle may increase … we are not aware of any crashes or injuries related to this condition.”
The Nasdaq-listed company's shares dropped more than 4 per cent to $1,153 a share after the news before recovering a little midway into Tuesday's trading hours. They closed 3.03 per cent lower.
Tesla, which has a market value of $1.16 trillion, said the issue was caused by a software update that took place on October 23.
The over-the-air update created a software communication disconnect between the vehicle chips that can result in the “video neural networks that operate on that chip to run less consistently than expected”, the report said.
“The inconsistency can produce negative object velocity detections when other vehicles are present, which in turn can lead to false FCW and AEB events”.
Tesla released an over-the-air software update the next day to address the issue and owners were notified of the problem.
“In a matter of hours, we investigated the reports and took actions to mitigate any potential safety risk,” Tesla said.
Although the software update addressed the issue, rules from the NHTSA demand that the cars be recalled to independently verify the results, something that the regulator has already warned Tesla about in recent months.
In August, the US government’s car safety agency initiated a formal probe into the EV maker's autopilot system after identifying 12 separate incidents in which a Tesla vehicle crashed into parked vehicles.
Tesla's shares, meanwhile, had received a boost last week after Florida-based car rental company Hertz confirmed that it placed an order of 100,000 vehicles from the EV maker.
The news propelled Tesla's market capitalisation to above $1 trillion after its stock surged to a record high of more than $1,000 a share – about 11 years after the company went public.
However, Tesla’s billionaire chief executive Elon Musk has sought to temper the market enthusiasm as he clarified that there is no concrete deal as yet.
“I'd like to emphasise that no contract has been signed yet. Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics,” Mr Musk said on Twitter.
The California-based company, which joined the S&P 500 index in December, reported a 389 per cent jump in its third-quarter net profit to $1.6 billion. It delivered a record 241,300 vehicles in the third quarter of this year, topping analysts’ expectations of 220,900 vehicles.
Last month, the car maker revealed that it is facing Covid-induced supply chain, transport and production challenges but said it is running its production lines “as close to full capacity as conditions [allow]”.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
