The Impact of Auto Recalls on the Industry

Auto recalls are a common occurrence, with millions of vehicles being recalled every year in an effort to keep cars on the road safe. While recent news of recalls by Ford Motor and Tesla might cause concern, it’s worth noting that such instances rarely have a significant impact on car makers’ stocks or earnings.

The biggest EV manufacturer, Tesla, has become the world’s most valuable car company, which is why investors have been closely following NHTSA automotive recalls. However, the majority of Tesla’s recalls are fixed via software updates, which is a new practice for the auto business.

On June 20, the NHTSA launched an investigation into the 2020 to 2023 model-year Ford Explorers, citing concerns that a rear-axle bolt could break, leading to the car moving while it was in park. Ford resolved the issue with a software update that turned on the electronic parking brake.

It’s important to remember that recalls are typically the result of investigations by the National Highway Transportation Safety Administration (NHTSA), and allow auto makers to address problems and move on. Although recalls can be detrimental to a company’s reputation, they are a crucial part of ensuring driver safety.

Auto Makers Recalls

Auto makers have been recalling a significant number of cars over the last several years. However, this year, the number of recalls has decreased. Major auto makers have recalled about 12.7 million vehicles in 2022, a decrease from 14.6 million over the same duration in 2021.

Ford has had the most recalls among major auto makers, recalling about 4.1 million vehicles this year, down around 38% year over year. However, the latest recall might require a fix, as there have been two complaints about it.

Tesla recalls are notably lower this year, with only 370,000 cars recalled so far. The recall was due to a defective battery disconnect that might cause the battery not to isolate after a crash, but only 26 cars were affected.

Investors should not overreact to the news about recalls. Recalls only really matter when they cost billions or are associated with fatalities. It’s sensible for investors to keep an eye on these types of recalls while remembering that most recalls are the U.S. auto-safety regulations at work.

The Ford stock remained flat in early trading, while futures on the S&P 500 and Dow Jones Industrial Average were flat as well. Tesla stock went down 1.3% after Goldman Sachs reduced its rating on its shares to Hold from Buy.

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