• Tesla announced a recall this afternoon on 123,000 (built before April 2016) Model S sedans over a potential power steering issue.
• Tesla has had other recalls. In 2017 the company recalled 53,000 Model S and Model Xs over a parking brake problem, and in 2015, 90,000 Model S sedans were recalled for a bad seat belt.
• Assuming $500 (our guess) to repair each recalled Model S, suggests the cost of the recall to be just over $60m.
• The bigger issue is erosion of brand which impacts demand for Tesla’s and investors’ willingness to keep funding the Tesla mission.
• We believe the size of Tesla’s opportunity, defined as accelerating the world’s adoption of renewable energy, is so large they will continue to find investors willing to back the company.
• Our patience is being tested, but we continue to expect Tesla to be a winner in EV and AV.

Tesla is testing our patience. Today’s recall is the third negative news story related to Tesla in the past week on top of the Model X crash and Moody’s credit downgrade. We’re bracing for a fourth negative data point early next week when the company reports production and delivery numbers for the Mar-18 quarter. We’re expecting around 1,500 Model 3s per week, below the company’s target of 2,500. When we heard the recall news tonight we asked ourselves, do we still believe in the story? The answer is yes. Our support is based on a view that the company is uniquely positioned to capitalize on a dramatic shift in auto (computer on wheels), innovate in both EV and autonomy, and usher in a new paradigm of manufacturing efficiencies.