Tesla shares drop as car maker recalls 12,000 vehicles

The company is recalling vehicles over a software snag that could lead to collisions

Tesla issued a recall over a software snag that could cause collisions, although it claims to have fixed it with an over-the-air update. Alamy
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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 delivered a record 241,300 vehicles in the third quarter of this year. Reuters

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]”.

Updated: November 03, 2021, 8:58 AM