Tesla Motors (TSLA 4.96%) is on fire -- and we're not just talking about the stock. The electric-car maker suffered more negative press this week after another Model S caught fire. The incident marked the third electrical fire in one of Tesla's Model S cars in the past six weeks. Tesla said the fire resulted after road debris punctured the battery, not as a spontaneous event, according to a company spokesperson .
Tesla under fire
This comes at an important time in Tesla's history, as the company ramps up production of its Model S sedans and readies the Model X design for a 2014 rollout. However, persistent fires stand to derail the vehicles' reputation as the world's safest car , which could put a dent in demand going forward. After all, electric-vehicles don't have the best reputation when it comes to fires.
General Motors (GM 1.20%) knows the damaging impact that fires can have on EV sales. Last year, GM was forced to recall thousands of Chevrolet Volts after three Volt battery packs burst into flames during crash tests by the National Highway Traffic Safety Administration . The recall and negative headlines about these fires ultimately hurt sales of the Volt, with GM selling just 603 during the month of the 2012 recall .
It's important that Tesla get its fire troubles under control before it maims the company's brand image. We saw how quickly the Volt fires spread through the media, and those occurred after severe crash tests -- not on real-world roads. Nevertheless, Tesla's problem isn't an issue of safety.
In fact, your car is less likely to catch fire if it is a Tesla versus a conventional gas-powered car, based on nationwide driving statistics . In addition, Tesla's Model S features an onboard alert system that notifies a driver to exit the car in case of an emergency . The real challenge for Tesla, then, lies in assuring the public that its cars are safe, despite the recent bout of fires. This is crucial to Tesla's direct-to-consumer sales model, as well as the future success of the company.
Shares of Tesla are down more than 12% this week, and could have further to fall in the weeks ahead if the company can't rein in the negative press. Cars catch on fire. However, Tesla investors should pay close attention to how Tesla handles such setbacks. With Tesla's stock driving on bumpy asphalt these days, there are better growth stocks available to investors today.
