Tesla Acts on Fire Incidents - Analyst Blog

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Tesla Motors, Inc. 's ( TSLA ) CEO Elon Musk announced certain measures being implemented by the automaker in the light of the recent Model S fires and the resultant negative media coverage. Three incidents of fire in five weeks can only dent a vehicle's brand image and the CEO's damage-control strategy was much needed. Musk also defended the safety standards of the car.

The company is providing a wireless update to the air suspension to increase the ground clearance of the car during high speed travel. This is expected to reduce the probability of damage to the car due to any underbody impact. In Jan 2014, Tesla plans to release another software update that will enable the driver to control the air suspension ride height transitions.

Additionally, Tesla is expanding the warranty coverage to include any damage caused by fire even if it is a driver's mistake. While this move is aimed at easing the apprehensions of potential buyers, it also shows the automaker's confidence in its product.

Apart from these actions, Tesla also contacted the National Highway Traffic Safety Administration (NHTSA) to request for an investigation into the recent fires in Model S cars. The company believes that this move will provide scope for improvements related to fire safety of the car, although it emphasized that the probability of such a discovery is low.

Musk also used statistical data to illustrate that Model S has less than one-fourth chance of catching fire compared to a gasoline car. He also highlighted the car's strong safety rating.

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.

Meanwhile, the NHTSA announced that it will start an investigation into the Model S fires. However, the agency revealed that the investigation was not being conducted in response to Tesla's request.

Two of the three fires in Model S cars were sparked after debris on the road hit the undercarriage. The NHTSA will investigate whether Model S has any defect that needs to be fixed.

Tesla currently retains a Zacks Rank #3 (Hold). Other major automobile stocks worth considering are Daimler AG ( DDAIF ), General Motors Company ( GM ) and Ford Motor Co. ( F ). While Ford and Daimler are Zacks Rank #1 (Strong Buy) stocks, General Motors carries a Zacks Rank #2 (Buy).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DDAIF , F , GM , TSLA

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