Tesla shares edged lower on Tuesday, closing at $389.37, down 0.8%, as investors weighed a fresh U.S. recall and ongoing uncertainty surrounding the company's autonomous driving ambitions in Europe. The pullback came despite a generally positive tone in broader markets, with index futures advancing on Wednesday amid renewed enthusiasm for artificial intelligence and tentative peace hopes in the Middle East.
The National Highway Traffic Safety Administration announced a recall affecting 218,868 vehicles across Tesla's lineup, including certain Model 3, Model Y, Model S, and Model X units. The issue involves a delay in rearview camera images when the vehicle is shifted into reverse. Tesla is addressing the problem through an over-the-air software update, meaning owners can receive the fix without visiting a service center.
While the recall itself is relatively routine, the bigger overhang for Tesla stock remains the path to regulatory approval for its Full Self-Driving (FSD) system in Europe. Despite a provisional green light in the Netherlands, regulators from Belgium, Sweden, Finland, Denmark, and Norway have expressed concerns. Emails reviewed by Reuters highlighted worries that FSD encourages speeding, struggles on icy roads, and may allow drivers to bypass anti-phone-use protections. The Swedish Transport Agency's investigator, Hans Nordin, said he was "quite surprised" to discover that FSD could exceed speed limits.
Belgium's Flanders region is exploring how soon it might roll out supervised FSD, with Transport Minister Annick De Ridder urging regulators not to "slow down innovation" while emphasizing the need for a "thoughtful and safe" approach. Tesla declined to comment on the regulatory discussions.
On the sales front, April brought mixed results. New Tesla registrations more than doubled in Sweden, France, and Denmark, and rose in the Netherlands. However, registrations slumped in Norway, Spain, Portugal, and Italy. Andy Leyland, co-founder of SC Insights, noted that European EV sales are likely to rebound, driven by new models, stronger performance, and higher gasoline prices, though monthly data can be volatile due to delivery schedules.
Competition continues to intensify. Chinese automakers BYD, Chery, Changan, and SAIC's MG are launching new models tailored for overseas markets, from compact hatchbacks for Europe to pickups for Australia and Mexico. BYD executive Stella Li told Reuters that the Dolphin G hatchback is critical for the company, as hatchbacks account for over 40% of new car sales in parts of southern Europe. "If we don't have the right car in this sector, we lose," she said.
Meanwhile, Lucid, another U.S. electric vehicle maker, withdrew its full-year outlook after a supplier issue slowed production of its Gravity SUV. The company reported quarterly revenue of $282.5 million, well below the $440.4 million analysts had expected, sending its shares down more than 8% in after-hours trading.
Tesla's capital expenditure plans remain a central focus for investors. Last month, the company raised its 2026 capital expenditure forecast to over $25 billion, with CEO Elon Musk directing funds into artificial intelligence, robotics, and custom chips. CFO Vaibhav Taneja described this as a "very big capital-investment phase" and warned that negative free cash flow is likely for the remainder of 2026. On the April earnings call, Musk defended the spending, stating, "We are going to be substantially increasing our investment in the future," and arguing that the outlays are "well justified" by anticipated future revenue. The key question for Tesla stock is whether investors will see sufficient progress on robotaxis, Cybercab production, and FSD approvals before the heavy investment begins to weigh on the narrative.
