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Elon Musk Apologizes, Tesla Stock Unfazed

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Tesla (NASDAQ: TSLA  ) stock climbed to more than $106 in early trading on Wednesday despite the EV maker announcing a partial recall of 1,228 of its Model S cars. In a rare move, CEO Elon Musk issued an apology on the company's blog. In it, he explains that the recall is the result of a weakness in the mounting bracket on the back seat. Tesla says the defect only affects cars that were manufactured between May 10 and June 8 of this year.

Why this is a good thing
Typically, when a company issues a recall, that company's stock plummets on the news. Tesla stock, on the other hand, was trading up by more than 2% at the time of this writing. General Motors (NYSE: GM  ) recently recalled 200,000 SUVs due to the risk of mechanical fires inside the doors of the vehicles.

Meanwhile, Chrysler finally complied with the National Highway Traffic Safety Administration's requests to recall as many as 2.7 million Jeeps due to concerns that the vehicles can catch fire when hit from behind. I mention this because unlike Tesla, the NHTSA had to force these companies to issue a public recall, whereas Tesla discovered an imperfection in its cars and immediately confronted the situation.

Tesla's transparency in these matters is more important than ever. That's because it enables it to build trusting relationships with its customers, as well as potential customers. Moreover, Musk was quick to point out that Tesla's partial recall should not be blown out of proportion:

We do not wish to cause undue alarm, so it is perhaps worth clarifying that:

  •  The weld has not actually detached on any car
  •  There have been no customer complaints
  •  We are not aware of any injuries or near injuries
  •  No regulatory agency brought this to our attention

Because of Tesla's manageable size, the company is also able to make the recall as painless as possible for Model S owners. In fact, a Tesla representative will deliver a loaner Model S to your home and pick up your car for servicing. The car will be returned to you once a new bracket is installed. It's refreshing to see an auto company get ahead of a manufacturing problem. In Tesla's case, I think this setback paints both Musk and Tesla in a very flattering light. It's no wonder, then, that the stock is flying high despite a recall.

Where is Tesla stock headed from here?

Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.


Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 19, 2013, at 11:20 PM, prginww wrote:

    Tesla's approach is refreshing. Its a minor defect and they can afford to brush it off with stellar customer performance. Thats really easy to do when its a minor defect.

    However, the Tesla S model is quite a simple car when you get right down to it. It has far fewer moving parts than its ICE counterpart.

    Be prepared for Tesla's future, where all the recall efforts are for some minor defect here and there. Unlike the majors, Tesla puts its best foot forward on the First release of its car, not the 10th, like Ford or Bankrupt Motors (GM)

  • Report this Comment On June 19, 2013, at 11:23 PM, prginww wrote:

    Tesla's business model is to not make a profit on service (per Elon Musk). As Elon would tell you, the way to make that strategy work is to build a car that doesn't need any service. Even after 100 years thats still not a learned behavior at F and GM

  • Report this Comment On June 24, 2013, at 4:36 PM, prginww wrote:

    Somehow I believe that some people who don't want to see Tesla succeed will continue to complain about their service, construction of the car, delay in taking to much time to recharge the battery, the cost of the new batteries, and so on.

    I believe that Tesla has a different agenda besides profit like other car companies. Critics that try to downgrade Tesla are the very same people who ignore the goals Tesla has.

    This company lead by CEO Mr. Musk is concerned about the C02 gasoline cars are spewing into the air every day, and have created the Model S that was rated by Consumer Reports as the best car they ever rated, a 99 out of a possible 100.

    This CEO is determined to see that electric cars are the future not only because it's better for us financially, but our environment as well, that's Tesla's real goal, and the critics should not forget it, because as much as they may hate this company, their car and technology because they view this as a threat to their business etc.

    However these critics will also benefit from less C02 in our air as well, as we get rid of fossil fuels and C02 in our air, we will all live and breath better on this planet.

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