On Friday, Tesla Motors (NASDAQ:TSLA) notified owners it was voluntarily recalling Model S for a recently discovered seat-belt deficiency. Should investors be concerned?
"We are sending you this email to inform you of a proactive action Tesla is taking to ensure your safety," starts the email Tesla sent to customers last week. The company goes on to describe a defect a Model S passenger discovered in Europe: A front seat belt "was not properly connected to the outboard lap pretension."
The seat-belt issue was first noticed in the Model S when a passenger "turned to talk with passengers in the rear seat," according to Reuters.
Following the noticed defect, the company quickly inspected 3,000 Model S vehicles "spanning the entire range of Model S production" and could not find the seat-belt issue in any other cars, the company noted. But one seat-belt issue was all Tesla needed to voluntarily recall the entire fleet. So, the company is recalling every Model S ever produced, a number amounting to about 90,000 cars.
The recall consists of a quick six-minute inspection, according to Reuters. And the costs of serving its customers will be "immaterial."
To make the inspection as easy as possible for its customers, the company is servicing customers who cannot bring their vehicles to one of its company-owned service centers with a "ranger visit" -- one of Tesla's service options in which service technicians go to the customer. Further, Tesla is reportedly inspecting vehicles at some Supercharger locations, which are spread out strategically on key routes for long-distance travel.
For customer peace of mind, Tesla has described a way for owners to inspect their own seat belts before they have it officially inspected by the company, Reuters reports.
Tesla is telling customers they can test the seat belt assemblies themselves by pulling "very firmly" on the lap portion of the belt with a force of at least 80 pounds. But the company said customers should still visit a Tesla service center.
While the financial costs for the recall may be immaterial for Tesla, the recall could have a negative impact on the company's brand in the near term. Though even a near-term negative impact on brand perception is unlikely, as recalls in the auto industry are commonplace. Even Tesla's voluntary decision last year to reinforce the bottom of Model S batteries with a retrofit for every Model S ever produced has been all but forgotten. Further, the recalls that have historically negatively affected brands are those concerning issues that were initially ignored by manufacturers. Tesla's proactive measures already display the electric-car maker's unwillingness to take the risk of becoming one of those unfortunate tales of negligence.
Over the long haul, Tesla's undisputed leadership in safety will likely overshadow the company's voluntary recalls -- just as it has in the past. Model S has the lowest probability of injury of any vehicle ever tested, according to National Highway Traffic Safety Administration, which is lauded as the world's leading agency for vehicle safety tests. And Tesla's Model X will compound Tesla's lead in safety: It has an even lower probability of injury than Model S, according to the company. Gas cars won't be catching up to Tesla's safety rating any time soon; its record safety ratings are due to structural advantages achieved because the car is fully electric, e.g., a larger front crumple zone since the motor is located on the rear axle, superior performance in side collisions because battery's location across the floor of the vehicle allows it to more effectively absorb impacts, and a low center of gravity that makes rolling a Model S or X extremely difficult.
While there's no reason for investors to fret about the recall in light of data provided by Tesla today, investors could still check in on updates from the company to see if there are additional reports of seat-belt defects. If there are numerous reports of seat-belt problems, Tesla may be required to take additional actions, and any potential negative impacts on the company's brand could escalate.