Tesla (TSLA) Recalls Nearly 54,000 Vehicles Over FSD Feature

Electric carmaker Tesla, Inc. (TSLA) is recalling 53,822 vehicles in the U.S. due to a feature in its Full Self-Driving (FSD) software that prevents them from coming to a full stop at intersections. The "rolling stop" functionality enables drivers to drive past traffic intersections at slow speeds, ranging from five to six miles per hour.

News of the recall sent the company's shares down by as much as 4% to $390.93 in early morning trading on Feb. 1. They have recovered since and are currently changing hands at $941.84, unchanged from the day's start.

Key Takeaways

  • Tesla is planning to recall nearly 54,000 vehicles due to a feature in its Full Self-Driving (FSD) software that falls foul of safety regulations.
  • This is the second major recall of the company's cars in less than two months.
  • FSD is expected to be a major source of revenues for the carmaker in the future.

A Self-Driving Software Problem 

This is Tesla's second major recall in less than two months. In December, it announced a recall of 475,318 vehicles, a total that included Model 3 sedans and Model S sedans, due to a wiring defect that could lead to problems with images appearing on dashboard screens and increase the risk of a crash. 

The "rolling stop" functionality was introduced in Tesla’s FSD software in October last year. It is available in the "Average" and "Assertive" modes in FSD and enables Tesla owners to drive through intersections at a speed of five to six miles per hour. That limit breaks the law in some states, which require vehicles to come to a full stop at intersections. "The Vehicle Safety Act prohibits manufacturers from selling vehicles with defects posing unreasonable risks to safety, including intentional design choices that are unsafe," the National Highway Traffic Safety Administration (NHTSA) told online publication Gizmodo.

Tesla met with NHTSA officials on Jan. 10 and Jan. 19 to discuss "operating parameters" for the functionality and agreed to a recall on Jan. 20. The company plans to disable the functionality using an over-the-air (OTA) software update.

The FSD Spotlight

Tesla's recall also puts its FSD functionality, which is still in beta testing mode, into the spotlight. From a few thousand at the beginning of September last year, FSD has garnered more than 60,000 users, as the company reported in its latest earnings call. It is part of a suite of software services that are expected to drive Tesla's future revenue growth.

CEO Elon Musk also expects the technology to drive sales of the existing fleet of Tesla vehicles. When asked about the company's strategy to achieve 3 million vehicles in sales by 2024 without the introduction of new models, Musk said that the "gravity" of FSD was underappreciated, meaning the functionality will attract more buyers to the company's existing vehicle fleet.

To do that, however, Tesla will have to overcome several problems. The first Tesla crash involving FSD occurred in Brea, California, last year, when a Tesla in FSD mode moved into the wrong lane and collided with another car. While no injuries were reported, the car suffered severe damage on the driver's side.

Regulators are also not too happy with Tesla's rush to introduce FSD into the market. The NHTSA has announced several investigations into the functionality, and Jennifer Homendy, chair of the National Transportation Safety Board (NTSB), called Tesla's use of the term FSD to describe the functionality "misleading."

While safety agencies are apprehensive and wary about the FSD technology, analysts covering Tesla are bullish about its prospects. For example, Gene Munster, analyst with Loup Ventures, stated last year that Tesla FSD subscriptions could bring in as much as $102 billion in profits by 2032, assuming 80% of the company's total fleet is paying for the functionality.

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  1. CNBC. "Tesla to Recall Nearly 54,000 Vehicles That May Disobey Stop Signs." Accessed Feb. 1, 2022.

  2. New York Times. "Tesla Recalls Some Sedans Over Two Safety Defects." Accessed Feb. 1, 2022.

  3. Gizmodo. "Tesla Faces Recall Over Unsafe Driving Tech." Accessed Feb. 1, 2022.

  4. The Verge. "Tesla Model Y in Full Self-Driving Beta Mode 'Severely Damaged' After Crash." Accessed Feb. 1, 2022.

  5. Wall Street Journal. Tesla's Push to Expand Driver Assistance to Cities Rankles Safety Authorities. Accessed Feb. 1, 2022.

  6. Benzinga. "Tesla's FSD Alone Could Be Worth Much More Than Electric Car Maker's Market Cap." Accessed Feb. 1, 2022.

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