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Is Tesla's Recent Setback a Sign of Trouble to Come?

Source: Tesla Motors.

Tesla Motors (NASDAQ: TSLA  ) is one of this year's best-performing stocks, thanks to its fast-selling Model S sedan and outspoken CEO, Elon Musk. However, that wasn't enough to stop the stock from suffering its worst monthly decline in nearly three years, last month. Tesla shares plummeted more than 17% in October following, not one, but two Tesla Model S fires. Let's look under Tesla's hood to find out whether investors are right to worry about the EV maker going forward.

In the line of fire
Tesla's stock isn't the only thing that's been on fire lately -- so have its cars. The Model S, which earned a five-star safety rating in all categories, faced two separate incidents last month in which the vehicle caught fire after a collision. However, based on national statistics, your car is less likely to catch fire if it's a Tesla versus a conventional gas-powered car.

Specifically, nationwide driving statistics indicate that there is one car fire for every 20 million miles driven, whereas Tesla has encounter one fire in over 100 million miles, according to Musk. He went on to say: "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."

As an additional safety feature, Tesla's cars have an onboard alert system in place that notifies the driver to exit the car in case of an emergency. Additionally, the battery packs are contained by internal firewalls that will stop a fire from spreading to the passenger's compartment. Moreover, both of the Tesla drivers involved in the recent fires have already ordered new Model S cars.

Robert Carlson is still bullish on Tesla, even though his Model S caught fire last month after being struck by a metal object. In a note to the company's VP of sales, Carlson wrote: "I am still a big fan of your car and look forward to getting back into one. ... I am also an investor and have to say that the response I am observing is really supportive of the future for electric vehicles."

Setback? What setback?
The National Highway Traffic Safety Administration has since declared that the Tesla fires were not the result of a safety defect. Once again, Musk and his company prove they can roll with the punches. Nevertheless, it's important that shareholders remember that Tesla is still in its infancy. There will certainly be more hiccups along the road, perhaps even more fires. However, with Musk at the helm, Tesla will continue to turn obstructions into opportunities.

Investors will get more insight into the health of Tesla's business when the company reports its third-quarter earnings after the bell on Tuesday.

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Read/Post Comments (11) | Recommend This Article (3)

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 November 02, 2013, at 9:30 PM, NoWindows8LockIn wrote:

    This is a good article. It tells the truth: No company is perfect, and decisions should be guided by reason and not emotion.

  • Report this Comment On November 02, 2013, at 9:39 PM, thegreentreefrog wrote:

    At 4,741 Lbs, IT'S THE ELECTRIC PIG!

  • Report this Comment On November 02, 2013, at 9:48 PM, wholesalecd wrote:

    Two fires? not much ado about nuttin

  • Report this Comment On November 02, 2013, at 9:50 PM, wholesalecd wrote:

    """""""However, based on national statistics, your car is less likely to catch fire if it's a Tesla versus a conventional gas-powered car."""""

    Easy conclusion...much ado about nuttin

  • Report this Comment On November 03, 2013, at 12:49 AM, rotorhead1871 wrote:

    no one cares about tesla except the investors..looking to hook more investors....

  • Report this Comment On November 03, 2013, at 1:43 AM, tbarbar90 wrote:

    I think it should be noted that Tesla's fleet of vehicles is very young compared to the average age of gasoline powered cars.

    Batteries can sometimes do funny things as they age.

  • Report this Comment On November 03, 2013, at 3:51 AM, jefftheman1 wrote:

    i think its funny that 2 fires is an issue when they are talking fleets of vehicles with L P gas 20 times more volatile! trust me the electrics are coming they are way more efficient those who don't know this have been snowed by the big threes not wanting change, and the fact the vehicles need little maintenance. i built an electric truck i drive daily. I LOVE IT!!!

  • Report this Comment On November 03, 2013, at 4:46 AM, shineridge wrote:

    I love the idea of electric cars but they are simply NOT going to sell well to average folks at the present state of the technology, not for the PRICE. For the price, they just have too many limitations. Miles per charge, the fact that if on a trip, there is NO place to re-charge the battery, the fact it takes HOURS to re-charge them, etc. Again, for the price there is no electric car on the market yet that average people are going to buy. Period. There just isn't any real consumer demand .

  • Report this Comment On November 03, 2013, at 7:16 AM, vanishingpoint1 wrote:

    I see a LOT of Tesla's on the road every single day. I'm amazed at how many are out there at $115K a crack. Fuel tank technology has been around since the turn of the last century. Electric car technology has been around since the turn of this century, so they still have a lot to learn about crash safety, that the real car manufacturers have decade to figure out with gasoline. There very few crashes of gasoline powered cars that result in a fire, due directly to gasoline being on board. The true risks of electric cars won't be know for decades as these cars age and spontaneously combust due to corrosion, lack of maintenance and engineering that wasn't quite right to begin with. Not downing electric cars and I am especially not downing Tesla. They are really great, well built cars. The only way to learn is to build them and turn them loose. You can't engineer for ever possibility. A like without risk, is no life at all! Life and engineering is all about trial and error. All car companies figure it out as they go along.

  • Report this Comment On November 03, 2013, at 10:01 AM, coll1951 wrote:

    It's now 60 million miles for Tesla, plus the majority of ICE fires are with vehicles 12 years and older, not cars less than 1 year old, like the Tesla's. This is going to be a recurring problem with Tesla's not a one or two off incident, it's a flaw built into the design.

  • Report this Comment On November 03, 2013, at 1:58 PM, StanO6 wrote:

    @coll1951, may I suggest that you do not spend enough time on YouTube? Yes, brand new cars catch fire.

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