The last 30 days have been a wild ride for Tesla Motors (TSLA 2.70%) stock. After an exuberant rise of about 500% in just 12 months, Tesla's stock has fallen about 30% in about one month. While conservative guidance for the fourth quarter certainly had something to do with the sell-off, the fires are also a likely source. But is there really any reason for Tesla investors to be concerned?
Model S fire in Tennessee. Source: Tesla Motors' official blog.
Reviewing the facts
Sure, the National Highway Traffic Safety Administration opened up another investigation "to examine the potential risks associated with undercarriage strikes on model year 2013 Tesla Model S vehicles." But it's important to keep in mind that the investigation was opened up at Tesla's request.
What's more, Tesla did not request the investigation out of worry for its vehicles. Instead, Musk has explained in a company blog post that Tesla has requested the NHTSA to get involved in order to prove a point.
Given that the incidence of fires in the Model S is far lower than combustion cars and that there have been no resulting injuries, this did not at first seem like a good use of NHTSA's time compared to the hundreds of gasoline fire deaths per year that warrant their attention. However, there is a larger issue at stake: if a false perception about the safety of electric cars is allowed to linger, it will delay the advent of sustainable transport and increase the risk of global climate change, with potentially disastrous consequences worldwide. That cannot be allowed to happen.
Pulling some data from the National Fire Protection Association gives us further color on just how exaggerated the overwhelming number of negative media responses to Tesla's fires has been.
In 2012, the NFPA reported:
- 172,500 highway vehicle fires
- 300 civilian vehicle fire deaths
- 800 civilian vehicle fire deaths
- One highway vehicle fire every 182 seconds
Despite the overwhelming number of fires resulting from gasoline vehicles, Musk didn't hesitate to point fingers at the media's overreaction:
However, the three Model S fires, which only occurred after very high-speed collisions and caused no serious injuries or deaths, received more national headlines than all 250,000+ gasoline fires [extrapolating from 2012 NFPA data to paint a picture of a period that compares to the timeframe that the Model S has been in production] combined.
Conversely, extrapolating form the Model S data so far, drivers and occupants have a 0% chance of being hurt in an accident that results in a battery fire, and a 0% chance of death or serious injury in any Model S accident, period (despite "multiple high-speed accidents").
Sure, Musk acknowledges that "at some point, the law of large numbers dictates that this, too, will change." On the other hand, however, there are enough cars on the road for Tesla's stats to remain impressive. As Musk pointed out, there is just one fire in every 6,333 Model S vehicles on the road (using the 19,000 total vehicles Tesla reported it has sold in the company's third quarter), compared to one fire for every 1,350 gasoline cars.
After explaining that a gasoline tank has 10 times more combustion energy than Tesla's battery packs, Musk couldn't help from holding back his sarcasm:
It is also why arsonists tend to favor gasoline. Trying to set the side of a building on fire with a battery pack is far less effective.
Is a recall likely?
Not at all. Even though there is no substantial evidence of any design defect, Tesla has taken actionable steps to address the potential for battery fires anyway. Even more, Musk has even specifically addressed concerns of a product recall, saying that "there's definitely not going to be a recall" during a recent New York Times DealBook conference in New York earlier this month. And it's important to remember that this is the safest car to ever be sold in the U.S. we're talking about.
But given Tesla's meteoric rise to $194.50 per share, and its extremely forward-looking premium, the fires may have simply been the chosen medium for a much-needed sell-off that would inevitably come anyway. Whether they were the direct cause of much of this sell-off or not, shares are beginning to look fairly reasonable for the first time in a while. That said, I'd still like to see a larger sell-off to provide a bit of a margin of safety before I would call Tesla a buy.
