One, Two, and Now Three Fires: Is Tesla Motors Doomed?

No, Tesla Motors (NASDAQ: TSLA  ) is not doomed. But that's the sense investors got when yet another several billion dollars of Tesla's market capitalization was slashed on Thursday after a third Model S caught on fire. With more than 15,000 vehicles on the road and over 130 million miles driven, vehicle fires are inevitable. But if the market continues to react so negatively to every fire, the market could drive the stock to irrational lows. Is the market overreacting?

Details of the latest fire
The third Model S fire occurred in Smyrna, Tenn., on Wednesday.

Tesla spokeswoman Elizabeth Jarvis-Shean confirmed the fire. 

We have been in contact with the driver, who was not injured and believes the car saved his life. Our team is on its way to Tennessee to learn more about what happened in the accident. We will provide more information when we're able to do so.

Tesla says that the fire was not spontaneous and was the result of an accident.

The first two fires occurred in October: one in Seattle and another in Mexico.

It's all about perspective
Three fires for the Tesla's 2013 Model S definitely merits concern. It's even sparked renewed interest from the National Highway Traffic Safety Administration who says they will contact local authorities to look into the incident to determine if agency action is necessary. But with only three fires and no official announcement that there is any product defect, have investors overreacted?

Probably -- let's recruit some perspective. There are around 152,000 vehicle fires per year (17 per hour) according to the National Fire Protection Association. These fires have killed an average of four people every week.

Even more, why don't we hear what each of these three drivers had to say?

  • Driver of the first Model S vehicle says that he is still a big fan of the Model S and looks forward to his replacement vehicle.
  • Driver of the second Model S appreciates the safety of the car and has asked for Tesla to expedite the delivery of his next Model S.
  • Driver of the third Model S has asked for a replacement Model S and believes the car saved his life. 

So, some perspective brings all the drama surrounding Tesla's fires down to earth. On the other hand, the statistics are looking less favorable for Tesla. When the first fire occurred, Tesla had one Model S fire in 100 million miles. That compares to one vehicle fire for every 20 million miles driven for conventional gasoline cars. Now, however, Tesla's statistic has worsened to about one fire for every 50 million miles driven.

If this statistic continues worsen or there is an official announcement from Tesla or from a safety agency, then investors have reason to reevaluate the effect that a potential product defect may have on the company. For now, however, there isn't yet any reason for Tesla investors to be concerned.

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  • Report this Comment On November 09, 2013, at 9:32 PM, kaiger74 wrote:

    "the car probably saved his life",

    maybe also his marriage....or whatever!

    Tesla has done something special in developing this car, no doubt a good experience, if you can afford it.

    BUT the numbers just don't seem to add up.

    Neither re margins, once you apply the multitude of credits and subsidies are accounted for NOR

    with the sales numbers.

    With 20, 000 units sells p.a., give or take, a bit of Inventory manipulation and some clever sales unit shifting, you can meet and beat all kinds of guidance.

    A couple of days ago, there was a fellow on Bloomberg, who is following the WIN numbers and believes to have discovered considerable discrepancies....worth checking out.

    It's a hyped up Tesla against the world, the "world" is mostly representing Car companies, who've been in business for decades!

    A happy short seller of Tesla and for that matter Solar City.....which is another story, where unsustainable accounting schemes are going to be the undoing.

    KMF

  • Report this Comment On November 10, 2013, at 9:58 AM, AJMitch85 wrote:

    @TMFDanielSparks How about a follow-up report stating the Tesla has yet again outperformed in safety during the incident or doesn't good/positive news sell?

    http://www.teslamotors.com/blog/model-s-owner-tennessee

  • Report this Comment On November 10, 2013, at 6:59 PM, Johnny04 wrote:

    I'm a big Tesla fan, but at this point Tesla needs to address the problem. Our roads are full of debris and since the battery is at the bottom it has much bigger surface of vulnerability than the gasoline cars.

    In all three cases, the cars didn't burst into flame immediately. So they need to figure out a way to put out the fire before it spread.

    If they have a much smaller secondary battery somewhere within the car, sort of an emergency battery, they can drop the main battery the moment it detects fire and allow the car to move forward to a safe distance with the secondary battery.

    OR

    The car could carry a fire distinguisher and it should pop open the right compartments to allow the owners to put out the fire when it first started.

    In two of these cases, only the battery was damaged. If they could have replaced the battery right there, the cars would have been as good as new.

  • Report this Comment On November 11, 2013, at 5:50 AM, greenknight32 wrote:

    Disconnecting the battery wouldn't help, damage to the battery is shorting it out internally. Have to prevent the damage to the battery. Battery compartment is already armored, increasing the protection without adding a lot of weight is the difficulty.

    The battery compartment is sealed to contain the fire, having it pop open would defeat that. Better to have a built-in fire suppression system, automatically flood the damaged section with inert gas or fire-suppressing chemical.

  • Report this Comment On November 12, 2013, at 12:46 AM, robb wrote:

    Oh for God's sake. Nothing like trolling for readers with a wildly overdramatic headline and then dismissing it in the first sentence.

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