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Tesla Shares Fall, Another Model S Fire

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Tesla Motors, Inc.’s (TSLA - Free Report) troubles with its Model S electric car catching fire seems to be intensifying. For the third time now in five weeks, the Model S vehicle was reported to have caught fire on Wednesday. Shares of Tesla dropped 7.5% to $139.77 on Thursday, reflecting investors’ concerns over such repeated incidents that seriously dent the brand image.

The incident occurred on Wednesday afternoon near Smyrna, TN, after a Model S car hit road debris. The collision led to fire in the front portion of the vehicle. However, the passenger compartment was secured. Model S is equipped with a relatively new technology in the auto industry, i.e. lithium-ion batteries, which is more powerful than the lead-acid batteries, though more risk prone.

The battery pack of Model S is placed under the passenger compartment. A quarter-inch-thick metal shield safeguards the battery. The debris pierced that shield and damaged the battery.

In early October, Model S electric vehicle caught fire near Seattle, U.S. Tesla said that the incident took place after the vehicle collided with a “large metallic object,” which damaged the front end of the car. After the collision, the vehicle’s alert system alarmed the driver and thus there was no causality.

It was soon followed by a fire in another Model S in Merida, Mexico. The fire was ignited after the vehicle crashed through a concrete wall and hit a tree.

The National Highway Traffic Safety Administration (NHTSA) will contact Tennessee authorities to investigate any possible safety issues related to the fire. NHTSA had not investigated the Seattle fire incident due to lack of any evidence.

Incidentally, Tesla’s Model S has won the top vehicle safety rating from the NHTSA. The car obtained a five-star rating overall and also for each of its subcategories. This was a coveted award for Tesla as only 1% of cars tested receive the 5-star rating from NHTSA.

This rating means that Tesla’s Model S sedan offers exceptional safety to the passengers as it has the lowest possibility of injury to passengers among all major cars sold in the U.S. The safety score of this sedan exceeded the score of most sports utility vehicles and minivans.

The recent drop in share price comes close on the heels of a 14.5% decline to $151.46 on Nov 6. The decline in Tesla’s stock was due to disappointing third quarter results, arising from production shortfall. The company is facing a shortage of lithium-ion battery cells, which is limiting its production capacity. Thus, Tesla is unable to meet the rising demand for its Model S.

Different automakers including General Motors' (GM - Free Report) and Nissan Motor Co. Ltd. (NSANY - Free Report) are focusing on development of electric vehicles owing to their increasing demand. However, this incident raises concern about the safety of electrics cars.
Tesla currently retains a Zacks Rank #3 (Hold). Ford Motor Co. (F - Free Report) , a Zacks Rank #1 (Strong Buy) stock, is performing well in the automobile industry.

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