Another Model S Fire. Should Tesla Investors Worry?

Yes, another fire.

When the first Model S caught fire, Tesla Motors' (NASDAQ: TSLA  ) Elon Musk was able to quickly calm investors in a carefully worded blog post. But will Musk's voice be as reaffirming after a second fire in less than a month's time?

The fire
The second fire began after a Tesla Model S driver smashed through a concrete wall and into a tree last week, according to Tesla in a statement confirming the incident on Monday morning. Mexican newspaper Progreso Hoy posted this video of the incident.

As the video made rounds on Monday, Tesla's stock dropped 4%.

Tesla says the driver is safe and has asked Tesla to "expedite delivery of his next Model S."

The statistics are still in Tesla's favor
Is this just a coincidence that two Model S vehicles have caught fire recently? Or is there seriously a defect with the Model S that causes it to catch fire so easily?

Fortunately, the answer to this question is very easy. For now, Tesla's Model S still appears to be less likely to catch fire than a traditional vehicle.

As a Tesla blog post following the first fire pointed out, nationwide driving statistics suggest that there is one vehicle fire for every 20 million miles driven. Earlier this month, Musk said that the company's first fire marked one fire in more than 100 million miles driven for a Model S. With another fire, that statistic has changed to one fire in about every 50 million miles driven -- still a much better ratio than the national average.

Stats aside, Musk broke it down elementary style for Wall Street in the October 4 blog post: "For consumers concerned about fire risk, there should be absolutely zero doubt that it is safer to power a car with a battery than a large tank of highly flammable liquid."

No matter how rational that logic may sound, however, it hasn't stopped Mr. Market from shaving a few hundred million dollars off the company's market capitalization.

Should Tesla shareholders worry?

Not at this point. Though it's a development certainly worth keeping an eye on to see if fires persist, Tesla still has the upper hand on traditional vehicles when you look at the stats.

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Read/Post Comments (7) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 28, 2013, at 10:03 PM, Dashboard27 wrote:

    "Smashed through a concrete wall and into a tree. . ." in other words, it didn't just catch fire sitting parked on the street The driver walked away - try THAT in an SUV. On second thought, don't.

  • Report this Comment On October 28, 2013, at 10:41 PM, TheOstrich wrote:

    TSLA is doomed. The shorts are going to have their day real soon.

  • Report this Comment On October 29, 2013, at 6:02 AM, hunter3203 wrote:

    Is the Model S an unsafe car? No it's not, in fact it's performed very well in keeping its passengers safe.

    But what we're seeing is that perhaps it can't live up to the unrealistic expectations that Elon Musk was only too happy to help perpetuate.

    Is Tesla's stock over valued? Of course and perhaps this type of event will help people to be a little more realistic about Tesla's future. A future that is very bright by the way but one that doesn't include taking over the entire auto industry.

  • Report this Comment On October 29, 2013, at 8:09 AM, yermamma wrote:

    Musk stated after the first fire that "1 vehicle fire for every 20 million miles driven, compared to 1 fire in over 100 million miles for Tesla." His erroneous conclusion: "This means you are 5 times more likely to experience a fire in a conventional gasoline car than a Tesla!" His "analysis" of the statistics completely ignored the fact that the majority of car fires are due to the twin problems of age plus lack of maintenance. Eliminating those, and only looking at new cars, you will find that you are MORE likely to experience a fire in a new Tesla than in a new gas powered car!

  • Report this Comment On October 29, 2013, at 8:38 AM, alexf wrote:

    Another case of bad news sells for the news media. How many car fires a day in the USA? How many of them show on TV or YouTube?

    Battery cars are still a lot safer than gasoline cars.

    Like the poster said, it did not catch fire spontaneously sitting in the driveway. GMAB.

  • Report this Comment On October 29, 2013, at 1:55 PM, damilkman wrote:

    When a stock is frothy or a momentum play it is all about news. It does not have to rational. I recall a friend who had watched his little investment in Celera during the internet bubble quadruple. Bill Clinton makes one inane statement and everyone paniced. If your going to ride the wave, a wipeout from silly crazy things is part of the risk.

  • Report this Comment On October 29, 2013, at 4:20 PM, clickwhirrpop wrote:

    It's not quite right to compare the Model S average (1 in 50M miles) to the nationwide average (1 in 20M miles). The Model S are 1 or 2 years old at most and were built using state of the art manufacturing techniques. The nationwide average includes everything from 2013 Mercedes to 1974 VW vans to 10 year old economy cars that have never been maintained.

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