The Motley Fool Previous Page

Tesla's Slow Burn

Rich Duprey
October 4, 2013

Investors in Tesla (NASDAQ: TSLA) got burned along with the pricey electric car when a video posted to YouTube showed one of the vehicles fully engulfed in fire as a result of what was ultimately determined to be a battery problem.

The Model S had hit a piece of metal in the roadway, sparking the battery blaze. The incident ended up incinerating Tesla stock, too, as it fell by more than 6% in the days after the incident.

As much of a critic of electric cars as I've been, this hardly seems to be a rational decision by the market. This incident isn't akin to General Motors' (NYSE: GM) Chevrolet Volt fires weeks after crash testing, or even to Boeing's (NYSE: BA) state-of-the-art Dreamliner, which also has suffered from battery fires. There was direct cause and effect, and to suddenly fear that all Teslas would go up in flames seems ludicrous. While the battery fire raises safety questions, when you consider that gas-powered vehicles can carry dozens of gallons of flammable fuel, the battery pack seems the safer alternative.

Only the reaction is not as crazy as you'd first countenance. Tesla has been the can-do electric-car company, succeeding -- even profiting -- where critics (myself included) thought it unlikely. In that environment, investors bid its shares higher and higher to the point that, even with the company's tumble, the stock trades 500% higher than it did a year ago.

That, my friends, is a stock priced for perfection. That is a company that can't be allowed to have anything go wrong. And despite the advances the industry has made in perfecting the technology, the battery has been the weak link. From long recharging times to limited distance, not to mention the cost of replacement when the batteries finally and inevitably fail, if there was something that was going to hold back the car this was it.

Tesla has seemingly overcome most of these issues. Its new technology can go some 265 miles, further than any other EV on the road; its Superchargers recharge drained batteries roughly 20 times faster than standard chargers; and it has developed battery-swapping technology that's sort of like a propane tank exchange: for $60-$80, and 90 seconds of your time, you can "fill up the tank" with a new batte