Tesla Inc (NASDAQ:TSLA) shares dropped on Wednesday in response to its decision to recall over two million vehicles due to Autopilot issues, but the move is a “small step in the right direction,” according to Wedbush’s Dan Ives.
The automaker was forced to recall the vehicles equipped with its Autopilot advanced driver-assistance system in the US after a longstanding investigation by the National Highway Traffic Safety Administration (NHTSA), and despite Tesla's disagreement with the NHTSA's analysis on the matter.
The recall aims to install new safeguards through an over-the-air software update, adding "additional controls and alerts" to the affected vehicles.
“(This) tug of war with the NHTSA might now finally head in the right direction for Tesla have years of twists and turns on the Autopilot issue,” Ives wrote.
Full Self-Driving the "holy grail"
The focus now shifts to Tesla's Full Self-Driving (FSD) capabilities, considered the “holy grail” for CEO Elon Musk and the company.
The analysts believe that FSD will play a pivotal role in Tesla's future success, and the recent recall might be a catalyst for a more favorable regulatory environment.
“We do not believe FSD is currently being captured in the valuation of Tesla and this represents a key 12 to 18 months to get past some of the regulatory black eyes seen over the past few years with FSD,” analysts wrote.
Despite facing regulatory challenges, Wedbush said that Tesla appears well positioned globally, with demand holding steady despite significant price reductions throughout the year. Analysts suggest that Tesla's diverse portfolio, including its supercharger network, energy business, batteries, and fleet, positions it for continued success in the evolving electric vehicle (EV) market.
Focusing on FSD, Wedbush notes that Tesla's AI capabilities continue to gain traction, with the company making strides in AI training. The recent V12 update promises end-to-end AI for improved driving, emphasizing smoother turns and enhanced decision-making and detection capabilities.
“While the company aims to make its software ‘capable of driving at a level safer than humans’, the implementation of AI provides a greater opportunity to advance its software by training data for safer and more predictable outcomes,” Wedbush wrote.
Analysts have an Outperform rating on Tesla stock and a price target of $310.