Tesla Recalls 53,000 Cars Due to Parking Brake Flaw

This article covers a breaking news development: Tesla recall due to braking flaw.

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Tesla has initiated a recall of roughly 53,000 Model S and Model X cars according to a report from CNET. As the report says:

The problem lies with the electric parking brakes that help secure the vehicles when placed in Park. The parking brakes contain a small gear that might fracture, which would prevent the parking brake from releasing. Thus, a car that enters Park may not be able to move again. This has no bearing on the vehicles’ regular brakes, and Tesla has received no reports of the parking brake system failing to hold a car in place.
Shares of Tesla are down about 1.04% or $302.36 per share in alter-hours trading. Despite the magnitude of the number of cars affected, this Tesla recall has had a relatively minor effect on the company’s stock price.

Stock Price Leading Up to Tesla Recall

It’s been a good year to be a Tesla shareholder. Year-to-date, the stock has risen from $215 per share at the start of January to over $300 per share in the month of April. In the past few weeks, Tesla has gained a larger market capitalization than both GM and Ford. This CNN Money Report takes a closer look at how Tesla is now worth more than both GM and Ford — by billions of dollars. It remains to be seen whether the Tesla recall will initiate a correction in the stock price.

According to an article from (The Street), Barclays analyst Brian Johnson has a rationale for why shares of the zero-emissions automaker have risen so dramatically recently.

“Tesla will be a dominant market share player in the auto industry, similar to the iPhone in the cell phone business,” says Barclay’s analyst Brian Johnson in a note on Thursday. Johnson offers up several other bullish considerations on Tesla, including a significant and sustainable cost advantage in battery packs, a noticeable lead in autonomous driving and potential to dominate in other businesses such as energy, mobility and insurance.Brian Johnson, Barclays analyst

Interestingly, despite the upbeat note, Johnson reiterated his underweight rating on Tesla — the equivalent of sell — and $165 price target, which projects a 44% crash in the stock.

 

World Domination

This is what happens when stock price movements do not reflect the underlying fundamentals of a business. Investors, mostly retail investors, buy the stock because they like the company, there has been positive news, and the overall market has been going up. Yet what many of them do not realize is that the stock is already priced for world domination.

Even if Tesla was able to take over the world in both automobiles and energy, its current shareholders would never receive an adequate risk-adjusted return on their investment.

Tesla Stock Rating

This is the reason The Stock Trader Blog has Tesla on the Bearish List When there is no safety net or any sort of rational valuation metrics on a stock, the risk of losing capital due to idiosyncratic news events increases dramatically. As long as short sellers are patient, I believe they will eventually make a handsome return by shorting this company.

Tesla is an inspiring company, but its stock price is a great example of market inefficiency.

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