Safety matters a lot in the car market. Safety recalls and investigations, paradoxically, don’t matter that much.
Investors may not be able to tell that by looking at stocks. Tesla (ticker: TSLA ) shares fell 3.7% in midday trading Wednesday, the same day the National Highway Traffic Safety Administration opened an investigation into a steering wheel that could come loose. That
<span class="quote-pick">
S&P 500</span>
fell 0.2% and
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Nasdaq Composite</span>
was flat. </p><div> <p>NHTSA initiated an investigation into 2023 Model Y vehicles. The board received a few complaints about cars delivered without a retaining bolt that secures the steering wheel to the column.
Ten investigations have been opened by NHTSA so far this year involving vehicles made by Tesla, Ford Motor (F), Kia (000270.Korea), Volkswagen (VOW3.Germany) and others.
An investigation could lead to a recall that requires automakers to fix problems that could affect safety. Investors have been paying a lot more attention to recalls lately, now that electric cars are starting to grow rapidly around the country.
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<strong>The stock movement and the investigation coincide, but do not have a direct connection. </strong>And recalls are typically not investor-level events.
The top 12 automakers in the U.S. have recalled about 26 million vehicles over the past 12 months. Tesla has recalled about 3.8 million vehicles. Ford has recalled about 8.8 million. General Motors (GM) recalled almost 3.4 million
Big, serious recalls can affect stocks. But investors understand that the costs of recalls and maintaining vehicle safety are part of doing business in the auto market.
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The biggest issue for Tesla stock on Wednesday is a downgrade. Berenberg analyst Adrian Yanoshik downgraded Tesla shares to Hold from Buy. He raised his price target to $210 from $200 per share. stock.
Yanoshik upgraded shares to Buy on Jan. 27, saying the market overreacted to Tesla's vehicle price cuts in early 2023. The cuts initially spooked investors. A price cut on Chinese vehicles sent shares down to a 52-week low of $101.81 on January 6.
Yanoshik said the price cut showed cost leadership and that Tesla would gain market share as a result of lower prices. He seems to have been right. Tesla's share of the Chinese battery electric vehicle market increased in the first two months of 2023.
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Now, with Tesla stock up nearly 20% since the upgrade, the risk/reward equation changed for Yanoshik.
About 57% of analysts who cover Tesla rate shares Buy. The average call ratio for stocks in the S&P 500 is about 58%. A few weeks ago, 65% of analysts covering Tesla stock rated the stock a buy. That ratio is near an all-time high for Tesla stock.
After stocks fell 65% in 2022, Wall Street pounced. So after stocks rallied more than 100% from lows, Wall Street took some profits.
Write to Al Root at allen.root@dowjones.com
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