Tesla share price on watch as Q2 production report looms

Tesla on watch following Chinese recall

Electric vehicle giant Tesla (ticker: TLSA) often has a habit of defying the traditional rules of finance.

Over the weekend – Australian time – news started to trickle out that the automaker was facing a substantial recall, of some of its 285,000 vehicles in China.

As the company’s presence in places like North America mature, much hope has been anchored to countries like China as a means of supporting Tesla’s massive ambitions.

In a release from China’s State Administration for Market Regulation (SAMR) dated June 26, it was revealed that Tesla had informed the regulator that a number of its Chinese vehicles would have to be recalled.

The recall relates to issues concerning Tesla's 'active cruise function', it was noted in a statement from the SAMR.

Specifically, from Tesla's Beijing operations, 35,665 imported Model 3's – that were produced between January 12, 2019 and November 27, 2019 would have to be recalled.

More significantly however, from the company's Shanghai operations, 211,256 domestic Model 3's – that were produced between December 19, 2019 to June 7, 2021, would have to be recalled. In addition to that, some 38,5999 Model Y's – Tesla's high margin luxury model – were also being recalled.

Mind you, this isn’t your typical recall. Rather, Tesla said it would make use of OTA (over the air technology), to ‘upgrade the active cruise control software for vehicles within the scope of the recall for free, and users can complete the software upgrade without going to the store.’

The company said it would contact customers whose vehicles could not be upgraded through the use of OTA technology via the Tesla Service Centre.

The potential for Tesla to ‘beam’ an update to its impacted vehicles potentially explains why the stock moved on Monday. No, it didn’t crash, rather TSLA finished out the session up 2.51% at the $688.72 per share mark. Over the last month, the stock is up 10% as second quarter delivery and production data looms.

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Q2 delivery numbers fast approach

This all comes as the automaker is set to report its preliminary Q2 production and delivery figures – typically released during the first week of the month of the quarterly earnings report.

In the prior quarter Tesla produced ~102 thousand vehicles, made up of ~15.3 thousand Model S/X’s and ~87.2 thousand Model 3/Y’s. Total deliveries, by comparison, came in at ~88.4 thousand.

The company has said that it expects to grow its 'manufacturing capacity as quickly as possible', with the expectation to achieve a 50% average annual growth in vehicle deliveries in the near-term.

Expectations are as such elevated, with the stock trading close to 700x earnings. This is despite the fact that Tesla continues to struggle with profitability, save for the sale of regulatory credits and its foray into the world of cryptocurrencies, both pursuits, which have proven highly lucrative for the automaker. The production of vehicles however, has been a trickier affair.