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Tesla Slips on Model S and Model X Recall Demand

Tesla stalls after the National Highway Traffic Safety Administration asks for a recall of 158,000 Model S and Model X vehicles over media control unit failures.

Tesla  (TSLA) - Get Tesla Inc. Report shares traded lower Thursday after the National Highway Traffic Safety Administration asked the maker of electric vehicles to recall 158,000 of its battery powered Model S sedans and Model X SUVs over media control unit failures.

Tesla was down 0.71% at $848.32 in trading after the auto safety agency made the unusual request in a formal letter to Tesla after upgrading a safety probe in November, saying it had tentatively concluded the 2012-2018 Model S and 2016-2018 Model X vehicles “contain a defect related to motor vehicle safety.”

While recalls are a fact of life in the auto industry, it is unusual for the agency to formally demand a recall. Automakers typically voluntarily agree to a recall if sought in discussions by regulators or institute recalls on their own accord if a fault is widely reported by customers.

Tesla must respond to the NHTSA by Jan. 27. If it doesn't agree, it must provide the agency “with a full explanation of its decision,” the letter said.

The recall follows a seemingly do-no-wrong year for Tesla, whose stock rose more than 730% last year on stronger-than-expected sales of its Model Y sedan in both the U.S. and China, despite the hit of the pandemic which shuttered its Fremont, Calif. factory for a time. Tesla was named the No. 1 stock of 2020 by TheStreet.

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And the momentum has only picked up in 2021. Tesla delivered the first Model 3 vehicles produced at its wholly owned factory in China this month, dubbed Giga Shanghai, exactly one year after breaking ground on construction. Giga Shanghai appears to be on track to produce about 150,000 vehicles in its first year.

Investors’ enthusiasm for Tesla and its future also vaulted CEO Elon Musk past founder Jeff Bezos to become the richest man in the world, according to Bloomberg's Billionaire's Index, which ranks the world's 500 wealthiest people. Bezos regained the title earlier this week after Tesla shares declined.

Wall Street's enthusiasm for Tesla doesn’t appear to be abating. Morgan Stanley analyst Adam Jonas last week pinned an $810 price target on Tesla, a Wall Street high, while calling the car company the "chosen one" thanks to its "people, its technology, business model and access to capital."

Jonas also upgraded his total 2023 volume estimate for Tesla to 1.7 million units, and a 2030 estimate of 5.2 million units, a 38% increase from his prior estimate.