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Tesla Stock Lower As NHTSA Orders Recall of 475,000 Cars Linked to Front Trunk Issues

Tesla will recall more than 475,000 of its Model S and Model 3 cars, the National Highway Traffic Safety Administration said Wednesday, owing to issues with the sedans' front truck

Tesla  (TSLA) - Get Tesla Inc Report shares traded lower Thursday following a report that the group will recall hundreds of thousands of its Model 3 and Model S sedans owing to an issue with car's front trunk.

The National Highway Traffic Safety Administration (NHTSA) said the recall, which was dated December 21, will affect 356,309 Model 3s produced between 2017 and 2020, as well as 119,000 Model S sedans made between 2014 and 2021.

The recall isn't the only issue Tesla has grappled with this month:  Reuters reported on December 6 that the Securities and Exchange Commission has opened a probe into the clean-energy carmaker linked to whistleblower claims of defects in its solar panels, while last week, Tesla blocked "Passenger Play" video game operability from its console screens while a car is in motion amid an an NHTSA investigation into around 580,000 cars sold between 2017 and 2021.  

"The NHTSA constantly assesses how manufacturers identify and safeguard against distraction hazards that may arise due to faults, misuse, or intended use of convenience technologies, including infotainment screens," the agency said in a statement on December 22.   

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Tesla shares were marked 2.4% lower in early Thursday trading to change hands at $1,058.50 each. 

Tesla posted net income of just over $2 billion for the three months ending in September, alongside the strongest profit margins in the group's history -- 30.5% -- and record sales of $13.7 billion. The blowout figures followed another all-time high in third quarter deliveries, which rose 73.2% from last year to 241,300 units.

CFO Zach Kirkhorn cautioned that plans to open and ramp-up production at new factories in Germany and Texas, as well as surging input costs and labor shortages, would impact margins in the coming quarters, but the group's ability to defy the global semiconductor shortage, while weaning its reliance on carbon credit sales to flatter its revenue line, has been truly impressive.

"The clear highlight of the beat was margin strength, in our view, with Tesla posting both record auto gross margin and operating margin," said Oppenheimer analyst Dan Levy.

"Looking ahead, there may be some lumpiness as Berlin and Austin start ramping and also amid ongoing raw mat headwinds," he added. "However, the ongoing run of gross margin strength is encouraging, proving sustainable, and with future potential upside as Tesla starts to increase software revenue."