Tesla Model S Recall: More A Psychological Than Financial Hit

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This Tesla Model S is displayed during the Vienna Autoshow

The recall sent Tesla’s shares down $6.63,or 2.5%, in Thursday’s after-market trading to $259.50, which almost erased the $8.35 gain during the day. This is after they have been under tremendous pressure the past week and after falling the past three weeks. For the week the shares were down $35 or 12% to $266 and since its most recent high on February 26 they are down $91 or over 25%.

Financial impact is small

While 123,000 cars is pretty large, I don’t believe the recall will have a material financial impact on the company. I’ve estimated a total cost of around $10 million comprised of the labor costs involved with changing the bolts, the bolts themselves and overhead costs. Here are my per car assumptions:

• One hour of labor: $50
• Bolt: $10
• Overhead: $25
• Total: $85

If all 123,000 cars are brought in, the total cost to Tesla will be about $10.5 million. This would be 0.05% of the company’s estimated 2018 revenue of $19.67 billion.

When you use the after-tax cost of $7.8 million and divide it by Tesla’s 166 million shares, the full-year EPS impact would be $0.05. The analysts are expecting the company to lose $(6.43) in 2018 so another nickel won’t be noticed. And this figure only comes into play if all 123,000 vehicles are fixed. A large number of Model S owners may not bother to have it done.

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Tesla announced a voluntary recall of 123,000 Model S vehicles built before 2016 to retrofit a power steering bolt. There haven’t been any injuries or accidents due to this part failing, but it can have excessive corrosion in very cold climates where calcium or magnesium road salts are used (but not sodium chloride or table salt). The car can still be driven if the component fails, but increased force would be needed since the power assist can be reduced or fail. But this should only be an issue at slow speeds or parallel parking.

This Tesla Model S is displayed during the Vienna Autoshow

The recall sent Tesla’s shares down $6.63,or 2.5%, in Thursday’s after-market trading to $259.50, which almost erased the $8.35 gain during the day. This is after they have been under tremendous pressure the past week and after falling the past three weeks. For the week the shares were down $35 or 12% to $266 and since its most recent high on February 26 they are down $91 or over 25%.

Financial impact is small

While 123,000 cars is pretty large, I don’t believe the recall will have a material financial impact on the company. I’ve estimated a total cost of around $10 million comprised of the labor costs involved with changing the bolts, the bolts themselves and overhead costs. Here are my per car assumptions:

• One hour of labor: $50
• Bolt: $10
• Overhead: $25
• Total: $85

If all 123,000 cars are brought in, the total cost to Tesla will be about $10.5 million. This would be 0.05% of the company’s estimated 2018 revenue of $19.67 billion.

When you use the after-tax cost of $7.8 million and divide it by Tesla’s 166 million shares, the full-year EPS impact would be $0.05. The analysts are expecting the company to lose $(6.43) in 2018 so another nickel won’t be noticed. And this figure only comes into play if all 123,000 vehicles are fixed. A large number of Model S owners may not bother to have it done.

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Read Again https://www.forbes.com/sites/chuckjones/2018/03/30/tesla-model-s-recall-more-a-psychological-than-financial-hit/

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