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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.