Being a media darling isn't as easy as it looks. When something
goes wrong, the whole world is going to be talking.
This year, electric-car maker
) will account for less than 0.05% of the world's passenger car
output. Yet within the financial media bubble, it seems like it
generates 99% of auto-industry headlines. A few short months ago,
that was a good thing. But now we're seeing the flip side of the
To the Moon!
Tesla's ascendancy to the spotlight came courtesy of two factors: a
unique CEO and an outstanding product.
Elon Musk is the most interesting CEO in America. Not only does he
make electric cars and rockets (through SpaceX), but he also
presented an idea for a warp-speed, low-cost bullet-train
substitute called Hyperloop. As well, he was a driving force behind
online-payment giant PayPal, which is now owned by
), and solar company
How many other people have had their hands in so many large-scale
technological revolutions in such a short period of time?
Musk's accomplishments led people to start comparing him to
genius/playboy superhero Tony Stark, a.k.a. Iron Man (though some
people think he's a jerk...):
And to some extent, he's filled the void left by the greatest
tech-industry icon of all time --
) Steve Jobs.
The Model S
A charismatic leader without a great product or service doesn't
amount to much. And just as Steve Jobs had the iPhone, Musk has the
Model S sedan, which has been nothing short of a critical
Several media outlets, including Motor Trend, named the Model S car
of the year and in May,
gave it a 99/100 score
-- its highest-ever rating for a car. It wasn't awesome for an
electric car. It was awesome, period, combining superb power and
performance with excellent handling and sharp looks.
On August 19, the news got even better for Tesla. National Highway
Traffic Safety Administration tests indicated that the Model S
received a five out of five rating in every safety category.
And in a test designed to measure the integrity of the roof, a
machine tried to crush it… and broke. How's that for headline
fodder? For Musk and Tesla, it was like a dream.
By September 30, Tesla's stock shot up to $194.50 for a whopping
474% year-to-date return, aided of course by strong earnings
earlier in the year.
On October 2, the stock took a 6% dip as a video of a Model S on
fire in Washington state from the day before started making the
rounds. Then on November 6, another Model S caught fire in
Both of these fires were the result of Model S batteries being
damaged by metal objects underneath the car. And in each case, the
owners were not at all fazed and in fact wanted new Teslas to
replace their burnt-up ones.
There was also a fire on October 17 in Mexico when a drunk driver
got in a high-speed crash.
Three battery fires in six weeks? That certainly didn't jibe with
the car's image as one of the safest on the road, and it became a
Time for Defense
In response to the October 1 fire, Musk wrote
a detailed blog post
explaining the accident, including the following passage:
A typical gasoline car only has a thin metal sheet protecting
the underbody, leaving it vulnerable to destruction of the fuel
supply lines or fuel tank, which causes a pool of gasoline to
form and often burn the entire car to the ground. In contrast,
the combustion energy of our battery pack is only about 10% of
the energy contained in a gasoline tank and is divided into 16
modules with firewalls in between. As a consequence, the
effective combustion potential is only about 1% that of the fuel
in a comparable gasoline sedan.
The nationwide driving statistics make this very clear: there are
150,000 car fires per year according to the National Fire
Protection Association, and Americans drive about 3 trillion
miles per year according to the Department of Transportation.
That equates to one vehicle fire for every 20 million miles
driven, compared to one fire in over 100 million miles for Tesla.
This means you are five times more likely to experience a fire in
a conventional gasoline car than a Tesla!
And in the case of the November 6 fire, the actual owner of the car
posted the following
on the Tesla blog:
I am thankful to God that I was totally uninjured in any way
from this impact. Had I not been in a Tesla, that object could
have punched through the floor and caused me serious harm. From
the time of impact of the object until the time the car caught
fire was about five minutes. During this time, the car warned me
that it was damaged and instructed me to pull over. I never felt
as though I was in any imminent danger. While driving after I hit
the object until I pulled over, the car performed perfectly, and
it was a totally controlled situation. There was never a point at
which I was anywhere even close to any flames.
There's no upside to potential safety issues with an emerging
technology like electric cars, but these are very effective
responses, considering the situation.
And Then There Was That Whole Earnings Thing...
On November 5, Tesla reported third-quarter earnings, but with
expectations sky-high, investors were disappointed with the
company's profitability and pace of vehicle deliveries.
Combined with the safety issues that had been driving volatility in
the stock, the financial disappointment put real fear in the hearts
of the bulls.
You can see it in this chart, which shows the 38% decline off the
A Crisis of Confidence?
On November 18, Musk wrote
a new blog post
entitled "The Mission of Tesla," where he did two things.
First, he correctly pointed out that there has been
disproportionate media coverage of the Tesla fires:
Since the Model S went into production last year, there have
been more than a quarter million gasoline car fires in the United
States alone, resulting in over 400 deaths and approximately
1,200 serious injuries (extrapolating 2012 NFPA data). 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
combined. The media coverage of Model S fires vs. gasoline car
fires is disproportionate by several orders of magnitude, despite
the latter actually being far more deadly.
And secondly, he announce three important actions: The company
rolled out a software update that would result in greater ground
clearance at highway speeds, requested an investigation from the
NHTSA, and amended its warranty policy to cover fire damage, even
in the event of driver error.
In response, the NHTSA directly contradicted Tesla's claim of
requesting an investigation with this statement:
NHTSA's decision to open any formal investigation is an
independent process. In regards to Tesla, the agency notified the
automaker of its plans to open a formal investigation and
requested their cooperation, which is standard agency practice
for all investigations. The automaker agreed to do so.
An NHTSA filing indicates that the investigation was opened on
A Bloomberg report
quotes Tesla VP Jim Chen as saying the company requested the
investigation that same day.
If the Model S is all it's cracked up to be safety-wise, then why
are all these changes necessary?
If the fires can be chalked up to coincidental flukes, and a Tesla
is statistically safer than traditional gasoline-powered vehicles,
why is the company responding so aggressively? And how did it get
itself mixed up in this back-and-forth with the NHTSA?
The Other Side
Tesla is seeing the other side of being the next big thing in the
automotive industry, and it can't be an easy situation after such
The Model S catapulted the company into the limelight in a huge
way, and Tesla can't simply disappear when the news flow is heading
in the wrong direction.
We don't know yet whether this whole mess will actually result in
weaker sales of Tesla cars, but the company must see that as a
possibility, and certainly, investors are a bit freaked out.
But one thing's for certain: Tesla's on the defense, fighting the
same media cabal that pumped its stock up to $194.
Talk about change.