Will Safety Concerns Dent Tesla Motors Inc. Stock?

  • Another Tesla Model S has caught fire.
  • This comes just a few weeks after a person died in a Model S crash, and another Model S fire in Norway in January.
  • Is Tesla's safety record in jeopardy?

Tesla (NASDAQ:TSLA) doesn't seem to be able to catch a proper break these days. Even as Tesla is making news for its recently announced speed and driving range enhancements on the Model S, recent incidents involving the car might raise concerns for some investors. About six weeks ago, Tesla came out strongly to defend its autopilot driving technology after a Florida resident was involved a fatal crash while driving his Model S on Autopilot with hands completely off the wheel. Tesla stock held up quite well after the event, and even managed to avoid falling despite posting an earnings miss two weeks later.

Tesla Model S

The dust has barely settled and now Tesla has a potentially bigger issue to contend with. There are reports that a Tesla Model S 90D recently erupted into flames during Tesla's Electric Road Trip Promotion in France. According to the report by Electrek, the car burst into flames due to a faulty charging system. Luckily, the visual charging alert on the dashboard allowed the passengers in the vehicle ample time to exit before it eventually burst into flames. An eerily similar incident took place in Norway when a Model S burst into flames when plugged into a supercharger in January this year. That was the first supercharger fire on record. Tesla later cleared the supercharging system and pinned the blame on a short circuit in the vehicle.

This latest incident also brings back to memory a period back in 2013 when three Model S fires in the space of six weeks led to Tesla  being investigated by the Federal Safety Agency. Tesla promised to provide more protection for its lithium-ion batteries by adding aluminum deflector plates, a titanium underbody shield, and increasing ground clearance.

Although the exact cause of the France fire remains unknown at the moment, it's potentially more serious than the Florida accident because it appears to be a result of a design flaw rather than a pure chance event. In all the previous three cases of under-hood fires, the vehicles burst into flames after the vehicles' undersides struck an object. But the latest fire accident happens to be a faulty charging system that had just run amok.

Stellar safety record

Tesla's Model S has previously won five-star ratings from the US National Highway Traffic Safety Administration in virtually every test category. Additionally, Consumer Magazine has given the vehicle the highest rating ever for a consumer product--a score of 99 out of 100. Is this stellar rating now in jeopardy?

It's instructive to note that apart from the Florida driver who was killed when driving hands off on Autopilot, no fire accident has so far resulted in any deaths or injuries. Tesla is, however, not the only EV maker that's been plagued by fire accidents. Several electric plug-in fire accidents have been reported to-date, involving a Chevrolet Volt, Toyota Prius Plug-in Hybrid, Outlander P-HEV, Dodge Ram 1500 Plug-in Hybrid, and Mitsubishi i-MiEV. Almost all the fires involved thermal runaway incidents, one of the biggest risks for lithium-ion batteries. Thermal runaway happens when a battery cell ruptures due to overheating or overcharging, with fires breaking out in extreme cases.

It's somewhat surprising that a good number of those fires involved hybrid plug-ins, whose nickel-metal hybrid batteries pose a much lower risk for thermal runaway than nickel-ion batteries used in pure EVs. In any case, the fact of the matter is that there are literally thousands of fire accidents by gas powered vehicles reported every year, with a good number happening at the pump.

In fact, vehicle fires are alarmingly common: the fire department responds to an average 287,000 vehicle fires every year, or about 17% of all reported fires in the U.S. each year. There are 90 highway fires for every one billion driven miles. Tesla vehicles have logged more than a billion driven miles, with maybe six or seven reported fire incidents in total. We can therefore safely say that Tesla's fire accident record is at least 10 times better than the average for gasoline vehicle manufacturers.

The same case applies for Tesla's Autopilot. The Florida fatality means that Tesla vehicles have recorded one death after logging 130M driving miles on Autopilot, considerably better than the U.S. average record for all vehicle models of one fatality per 98M driving miles, and more than twice as good as the world's average of one death per 60M driving miles.

Tesla stock takes a hit?

But it's equally important to note that investors and consumers alike do get alarmed by these kinds of reports. In a conference call with analysts in February 2014 following the three fires in 2013, chief executive Elon Musk admitted that the incidents had actually resulted in a significant decline in demand for the company's vehicles. The third 2013 fire actually knocked close to 10% off Tesla's stock price. This time around, Tesla stock has been a lot more resilient, and is up almost 5% since the Florida accident.

EV technology is relatively new, and consumers tend to be quite finicky with any new technology. But unless Tesla fires become more frequent (an unlikely occurrence) or happen in quick succession like the 2013 accidents, Tesla stock is unlikely to be harmed by these incidents.

Brian Wu Brian Wu   on Amigobulls :
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