218,000 Reasons to Sell Tesla Stock in May
When there was a period recently when Elon Musk was not making the headlines every day, Tesla (TSLA) shareholders must have heaved a sigh of relief. They believed that Musk, after his political sojourn and an approved $1 trillion pay package, was finally going all in to MTGA (Make Tesla Great Again) from MAGA (Make America Great Again).
Well, these shareholders have to hold their horses (or EVs) again, as after involving himself in a legal scuffle with OpenAI, more bad news has come in for Tesla.
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Tesla To Recall More Than 200,000 Vehicles
According to a report from Reuters, Tesla is set to recall 218,800 vehicles because of issues in the images of its rearview camera. Latency in the appearance of images has been purportedly identified as the issue.
And this is nothing new for the company.
Over the past several years Tesla has recorded a substantial number of vehicle recalls across its entire product lineup. Regulatory agencies like the National Highway Traffic Safety Administration aggregate these figures routinely. For the Model Y alone there have been over eighty distinct recall campaigns since the vehicle launched in 2020, which averages roughly fourteen recalls annually. Beyond camera glitches, previous recalls have involved severe physical defects. For example, late 2025 campaigns targeted faulty battery pack contactors that triggered sudden propulsion losses while vehicles were in motion. Other historical issues included improperly secured horn wires and electronic power steering assist dropouts.
When evaluating whether these problems recur or see permanent rectification, investors must distinguish between hardware failures and software bugs. Physical hardware defects require traditional service center visits for complete parts replacement. Once identified, Tesla typically changes suppliers or alters manufacturing tolerances to eliminate the hardware flaw in all future production iterations. Conversely, software-related problems display a higher recurrence rate. Because Tesla constantly pushes new code to its fleet, issues involving screen blackouts or driver assistance logic frequently resurface in altered forms. Fortunately, the company resolves over 60% of all its vehicle recalls through remote over-the-air (OTA) updates. This methodology requires zero physical parts and costs the consumer nothing while saving the manufacturer millions in warranty labor. Consequently, the market views these software fixes as routine maintenance rather than structural failures.
However, Tesla’s recall history is not just restricted to its EVs. The most prominent non-automotive recalls have centered around residential solar energy installations and home battery storage solutions. Following the acquisition of SolarCity, Tesla had to quietly replace faulty solar panel connectors across thousands of residential rooftops. These older generation Amphenol connectors were prone to abnormal heating and caused several minor roof fires. Also, more recently, global regulators intervened regarding the Powerwall 2 residential battery system.
The company discovered that specific lithium-ion battery cells sourced from a third-party supplier were failing and overheating. This thermal runaway risk led to units smoking or emitting flames, which caused minor property damage in a few isolated incidents. In terms of recurrence and future rectification, Tesla handles its energy division problems quite aggressively to protect its brand ecosystem. For the solar panel fires, the company completely phased out the problematic legacy connectors and instituted much stricter installation protocols for its newer Solar Roof products. The structural integration of modern solar tiles has largely rectified the localized heating issues seen in the older bolt-on panels.
Regarding the Powerwall battery defects, the company leveraged its software ecosystem to mitigate immediate danger. Engineers remotely discharged the affected home batteries to lower their thermal risk profile before scheduling physical hardware replacements at no cost to the consumer. Because Tesla designs its newer Megapack and Powerwall 3 systems with updated internal chemistry and superior thermal management architecture, these specific third-party cell failures have not recurred in the latest product iterations. The company has essentially internalized more of its battery validation processes.
Q1 Shows Some Bright Spots
Tesla closed out the Q1 of 2025 with results that went past Wall Street forecasts on both revenue and earnings, though the broader picture pointed to a business still navigating considerable headwinds.
The EV maker reported total revenue of $22.4 billion for the quarter, a 16% rise from the same period a year ago. Automotive revenue grew at the same rate to come in at $16.2 billion. EPS landed at $0.41, up 52% from the prior year and ahead of the consensus estimate of $0.35. This marked the second consecutive quarter of earnings beats from the company.
Notably, gross margins rose to 21.1% from 16.3% in the year-ago quarter, while operating cash flow increased by 83% to $3.9 billion. Overall Tesla ended the quarter holding $44.7 billion in cash, a figure that comfortably exceeded its short-term debt of $1.45 billion.
Vehicle production and delivery figures reflected a challenging demand environment, particularly following an earlier pull-forward in purchases tied to the expiration of federal electric vehicle tax credits. Tesla produced 434,358 vehicles during the quarter, up 5% from the prior year, while deliveries declined 16% to 418,227 units. The difficult conditions carried into the opening quarter of 2026, when production came in at 408,386 vehicles and deliveries reached 358,023 units, falling short of the expected 358,023 units. Despite missing that target, both figures represented year-over-year (YoY) improvements, with production rising 12.6% and deliveries climbing 6.3%.
Certain segments of the business offered a brighter outlook. Active Full Self-Driving (FSD) subscriptions grew 51% YoY to reach 1.28 million. The energy division, however, witnessed a decline, generating revenue of $2.41 billion, a 12% decrease from the prior year. Tesla also pressed ahead with infrastructure expansion, growing its Supercharger network by 19% to 8,463 stations and increasing the total number of connectors by 19% to 79,918.
Despite the softness in core operating trends, Tesla shares continue to trade at a substantial premium relative to the broader sector. The stock carries a forward P/E ratio of 189.49, well above the sector median of 15.35. Its forward P/S ratio stands at 14.28 compared with a sector median of 0.88, and the P/CF multiple of 104.69 contrasts sharply with the industry median of 9.58.
TSLA stock is down 9% on a year-to-date (YTD) basis.
Analyst Opinion on TSLA Stock
Amid all this, analysts continue to rate TSLA stock a consensus “Hold.” The average target price of $404.06 has already been surpassed and denotes a downside potential of about 1% from current levels. Out of 42 analysts covering the stock, 15 have a “Strong Buy” rating, two have a “Moderate Buy” rating, 19 have a “Hold” rating, and six have a “Strong Sell” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com