Since Elon Musk’s electric car manufacturer opened a super factory in Shanghai, almost all cars manufactured and sold in China have been recalled due to concerns about cruise control systems.
According to Chinese regulators, the problem is that the system may be accidentally activated in certain models, causing unexpected acceleration. The recall includes 35,665 imported Model 3 cars and 249,855 Model 3 and Model Y cars produced by the Shanghai plant, or almost all domestic cars sold by Tesla (TSLA) in China since January 2020.
Tesla apologized for the recall over the weekend and added in a statement that it will “strictly comply with national regulations and continue to improve our safety protection.”
Tu Le, the founder of Sino Auto Insights, a Beijing consulting company, said that this setback is not as destructive as a traditional recall because it can be resolved through software updates and does not require customers to return the car. “This is just a patch,” he said. “Most customers will not know anything’s happened to their car.”
Daniel Ives, managing director of equity research at Wedbush Securities, said that the scale of the problem is still Tesla’s “dark circles”. He pointed out that the announcement was made after the automaker caused a series of controversies.
The company recently became the target of Tesla owners’ protests at the nation’s largest auto show in Shanghai, where they complained about problems with their cars. Regulators also questioned the quality of Tesla’s Shanghai-made Model 3, and there are reports that the Chinese military has conducted stricter scrutiny of the company.
“Let us be clear: this is not news that bulls want to see, because it adds to China’s negative PR problems,” Ives wrote in a report to clients on Sunday. Musk had predicted that the world’s largest auto market may eventually become Tesla’s most important market.
China is not the only concern for Tesla. Due to competition with short sellers and concerns about its management, the company’s share price has fallen by approximately 25% from its peak in the past year.
But the series of collapses in China are of no avail. At the Shanghai Auto Show in April, the company’s booth was briefly surrounded by protesters, and a woman climbed into a Tesla car and claimed that her car’s brakes were defective. The company’s initial response angered customers, who vowed to solve the problem, but “will not compromise on unreasonable demands.”
Faced with the criticism, Tesla later apologized to the “owner” and vowed to “strictly self-examine and correct itself and cooperate with the investigation of relevant government departments.”
This storm seems to have had an impact on the company’s sales, albeit short-lived. According to data released by the China Passenger Car Association (CPCA), the electric vehicle leader sold less than 26,000 units in China in April, a 27% decrease from March.
“The cumulative effect of negative publicity affected them,” Le said, noting that Tesla’s troubles “no doubt” provided opportunities for its competitors. For example, Chinese electric vehicle manufacturers such as Weilai, (NIO) Xiaopeng (XPEV) and Li Auto (LI) have all reported that domestic sales have improved during this period. However, according to CPCA data, Tesla’s sales rebounded to more than 33,000 vehicles last month.
Ives said that he believes the recall “is a bump on the road and will not undermine Tesla China’s recent or long-term bull market argument. However, in the future, it needs to go smoother in terms of autonomous driving safety, otherwise the public relations cloud will continue to exist.”
Tesla tried to appease Chinese officials by responding to criticism. Last month, it announced that it had established a new data center in mainland China to store any data it collects from locally sold cars in China-this is the question the company faces, namely whether its cars can be used On the occasion of espionage. Even Musk stepped in, assuring officials of the company’s “future in China.”
But some analysts called on the company to take more action. Ives stated in Sunday’s notes that the CEO and his team have a responsibility to ensure that “these problems are in the rearview mirror.”
Le also stated that the automaker should focus on building more goodwill in the country by doubling down on customer service and improving ties with the authorities.