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Panasonic Comments on Tesla Model S Fire

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For an automaker, it is obviously never good news if its vehicles catch fire. As for Tesla Motors, Inc. (TSLA - Free Report) , the company had to deal with three incidents in five weeks of its Model S electric car catching fire. However, now Model S’ battery cell maker Panasonic has come to support the automaker and said that both Tesla and Panasonic maintain high safety standards.

Panasonic’s statement makes sense as it was the battery compartment that caused the latest fire. The latest incident occurred last 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.

As a result of this fire, shares of Tesla had dropped 7.5% to $139.77 on Nov 7, reflecting investors’ concerns over such repeated incidents that are denting the brand image. The drop in share price was close on the heels of a 14.5% decline to $151.46 on Nov 6 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.

Tesla has increased its production capacity to 550 cars per week and has delivered more than 5,500 cars during the third quarter. The automaker has also expanded its supplier agreement with Panasonic, whereby the latter will supply around 2 billion automotive grade lithium-ion battery cells to Tesla over the next four years. This is enough to produce around 300,000 cars. The company is also considering opening a cell and battery giga factory to boost cell production.

Tesla currently retains a Zacks Rank #3 (Hold). Other major automobile stocks worth considering are Fox Factory Holding Corp. (FOXF - Free Report) , General Motors Co. (GM - Free Report) and Ford Motor Co. (F - Free Report) . While Ford is a Zacks Rank #1 (Strong Buy) stock, the other two carry a Zacks Rank #2 (Buy).

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