esla Motors, Inc.
) 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
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.
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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
Different automakers including
Nissan Motor Co. Ltd.
) 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.
), a Zacks Rank #1 (Strong Buy) stock, is performing well in the