Investors in Tesla may find a sense of vindication on Thursday after two major recalls from global auto makers that came in the wake of Tesla’s recent recall.
On Wednesday, Toyota announced that it was recalling approximately 1 million units to address an air-bag issue. According to the news release, there may have been improper manufacturing of the “Occupant Classification System” sensors in the front passenger seat, leading to a potential short circuit. This malfunction could prevent the air-bag system from accurately determining the weight of the occupant, possibly resulting in the air bag not deploying properly in certain accidents and increasing the risk of injury.
Similarly, Honda is issuing a recall for about 2.5 million vehicles due to potentially faulty fuel pumps. The announcement was made on the National Highway Traffic Safety Administration website, where most recalls are reported.
These recalls by Japanese auto manufacturers amount to a staggering total of 3.5 million vehicles being recalled to address hardware issues. In comparison, Tesla recalled around 2 million vehicles during the same period in order to update driver warnings when using their driver-assistance features.
Tesla’s driver-assistance products, namely Autopilot, Enhanced Autopilot, and Full Self Driving, have been a source of controversy since they, like systems from other auto makers, require drivers to remain fully engaged at all times.
Unlike the air-bag and fuel-pump recalls, Tesla’s recall was resolved through a software update delivered wirelessly. This method offers a cost-effective solution compared to the extensive hardware repairs required for the other recalls. Nevertheless, the cost of these recalls is unlikely to have a substantial impact on Toyota and Honda investors.
Recalls and warranty costs are an inevitable part of any business in the automotive industry. Within the past two years, approximately 50 million cars have been recalled in the U.S., with Toyota accounting for around 5 million units, and Honda and Tesla accounting for 6.5 million and 6.7 million units, respectively.
Recalls in the Spotlight
Recalls have been receiving increased attention in recent times due to a confluence of factors. Firstly, as Tesla surges ahead to become the world’s most valuable car company, its eccentric leadership adds an extra layer of intrigue.
Moreover, with the advent of advanced driver-assistance and autonomous technologies, any developments or issues in these areas naturally pique the interest of investors and the general public. It is worth noting that an impressive 90% of Tesla recalls can now be resolved through software updates, a relatively new and innovative approach compared to other automakers. In fact, software problems usually account for only about 15% of recalls by other manufacturers, as per our analysis of NHTSA data. The rise of connected and smart vehicles further contributes to the overall novelty investors are grappling with.
Following the recent recall, Tesla’s stock has witnessed a modest 4% increase. Conversely, Honda’s shares encountered a 2.9% decrease during overseas trading on Thursday. Additionally, Japan’s Nikkei 225 Index experienced a significant drop of 1.6%.
Meanwhile, Toyota’s shares plunged by 4% in overseas trading, with U.S.-listed American depositary receipts following suit and declining by 1.2% during premarket trading. On a more positive note, S&P 500 and Dow Jones Industrial Average futures displayed an upward trend, rising by 0.5% and 0.4%, respectively.
However, it’s important to highlight that Toyota’s stock decline isn’t solely attributed to recalls. Toyota recently disclosed the discovery of “vehicle testing irregularities” within its compact-car division Daihatsu, as uncovered by an independent investigation. The irregularities specifically concern side-impact crash tests and other associated components and features. Consequently, Toyota has taken the proactive step of suspending shipments of all Daihatsu vehicles in response to these findings.
“We deeply apologize to our customers and other stakeholders for causing great inconvenience and concern, and betraying their trust,” states a section of a press release issued by Daihatsu.
