Tesla Cut Steering Component In China-Made Model 3, Y Cars As It Grappled With Chip Crunch: Report

Tesla Inc TSLA removed an electronic control unit including in the steering racks of China-made Model 3 and Y cars as it faced a semiconductor shortage.

What Happened: The company under pressure to hit fourth-quarter sales targets amid the chip shortage removed the electronic control unit but did not say it was doing so, reported CNBC, citing two anonymous sources and internal correspondence of the company.

The affected vehicles were reportedly shipped by the Elon Musk-led company in tens of thousands to customers in China, Australia, the U.K., Germany, and other parts of Europe.

The exclusion would not cause safety issues as the removed units were mainly used as a back, reported CNBC.

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Why It Matters: Removal of the electronic unit would mean that adding “level 3” functionality to the affected vehicles, would require a retrofit during service, according to the CNBC report. Level 3 functionality allows a driver to use their car hands-free without steering.

At the time when the change was being implemented, Musk tweeted, “Oh man, this year has been such a supply chain nightmare & it’s not over!,” CNBC reported.

Tesla employees reportedly debated on whether the exclusion should be reported to customers but decided against it as the involved part is considered a backup, not necessary for level 2 driver assistance features.

Tesla reported fourth-quarter revenue of $17.7 billion in January, which beat a Street estimate of $16.4 billion. Earnings per share during the period came in at $2.54 ahead of the estimated $2.26 per share.

Tesla expects to achieve 50% average annual growth in vehicle deliveries depending on the stability of the supply chain and capacity.

Price Action: On Monday, Tesla shares closed 1.7% lower at $907.34 in the regular session and rose 0.2% in the after-hours trading. 

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