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Why Tesla Stock Jumped on Monday

By Daniel Sparks - Jun 28, 2021 at 11:52AM

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Could the electric car maker's recall in China actually be a good thing?

What happened

Shares of Tesla (TSLA 3.10%) jumped on Monday. The electric car maker's shares rose as much as 3.4%. The stock was up 2.6% as of 11:10 a.m. EDT.

The growth stock's gain oddly follows an announcement of a voluntary recall of nearly 300,000 vehicles in China. Interestingly, a close look at the recall shows a reason why investors may be cheering the move.

Model Y's center console touchscreen.

Image source: Tesla.

So what

China's vehicle safety organization, State Administration for Market Regulation (SAMR), announced over the weekend that Tesla was voluntarily recalling over 285,000 vehicles in the country. An issue with Tesla's driver-assist system in its Model 3 and Y vehicles in the market reportedly meant that the technology could be accidentally turned on or off under particular circumstances.

Though it's considered a recall, drivers won't need to take their cars to a service station. The fix has been deployed as a remote software update. It could be argued that the rapid fix via a software update puts the spotlight on the company's software prowess. This could impress not only investors, but also Chinese consumers.

Now what

The stock's sharp gain on Monday adds to its recent momentum. Shares are up more than 20% since June 3. However, the stock is still down substantially from an all-time high of just over $900.

Investors will get insight into Tesla's recent performance when the company reports second-quarter results next month. The report is usually released at some point in the second half of July.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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