Tesla's recall of 285,000 cars in China is a 'black-eye moment' for the EV maker - but that won't derail its strong prospects, Wedbush says

• Tesla's recall of most of its cars delivered in China won't derail its growth prospects, according to Wedbush.
• Analyst Dan Ives said the incident is a clear "black-eye moment" for Tesla, already having reputational issues in China.
• China is one of Tesla's key markets, and is expected to represent 40% of deliveries for the company by 2022.

Tesla's China recall is a temporary blip for investors and doesn't indicate long-term damage to the electric-vehicle maker's growth story, Wedbush analyst Dan Ives said.

The EV maker will implement a voluntary "recall" by remotely updating software in around 285,000 Model 3 and Model Y cars to fix safety issues, China's vehicle safety authority said over the weekend.

The recall numbers add up to a majority of the vehicles Tesla has delivered to Chinese customers in recent years, Ives said Sunday.

The Wedbush analyst described the incident as a clear "black-eye moment" for Tesla, and not news its stock bulls want to read. He said it's another hit to the EV maker's reputation in China, following a slip in orders, a fatal crash and CEO Elon Musk being forced to reject reports the country's military had banned its cars.

China is one of Tesla's most important markets, expected to represent around 40% of global deliveries for the company by next year.

"China demand is a key driver for the long term Tesla growth story, and the company must play nice in the sandbox with Beijing around safety issues, otherwise it will be an impediment towards achieving its goals/targets in country," Ives said.

The autopilot systems in the affected cars can be activated accidentally, leading to a risk of crashes from sudden acceleration, China's State Administration for Market Regulation said. Under a recall plan filed with the regulator, Tesla will update software on about 211,000 Model 3 vehicles made in China and 36,000 imported from the US. Another 38,599 Model Y vehicles will also get the software patch, which will begin to roll out Saturday.

"We believe this situation overall is a bump in the road and does not derail the near-term or long-term bull thesis for Tesla China, however going forward it needs to be a smoother road on autopilot safety otherwise the PR black cloud will continue," Ives said.

The analyst reiterated an "outperform" rating for Tesla with a 12-month price target of $1,000. Tesla's shares were trading 2.5% higher at $688 per share on Monday.

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