Will the Model S Fire Send Tesla’s Success Up in Flames?

Tesla Model S

Billy Joel may not have started the fire, but one of Tesla’s (NASDAQ:TSLA) Model S sedans did, and now the U.S. electric car giant is doing whatever it can to mitigate the flames.

The Model S fire blazed Tuesday on Washington State Route 167, and Jalopnik was one of the first to share the news. A video of the burning Tesla vehicle then quickly went viral, and the California-based company watched its stock plunge 6.2 percent following the report on Wednesday and another 4.2 percent Thursday, closing at $173.31 on the Nasdaq.

Now, Tesla must do all it can to curb the shares dive and assuage consumer worry about the potential danger of its lithium ion battery-operated vehicles. As analyst James Albertine said to Reuters, “The bar is much higher for Tesla.”

That’s because Tesla only sells electric cars, while EV sales account for a fraction of U.S. rivals General Motors (NYSE:GM) and Ford’s (NYSE:F) businesses. If consumers start to lose confidence in the safety of the vehicles, Tesla thus has no other market to turn to, while its competitors can still rely on more traditional offerings.

Reuters reports that Tuesday’s fire was just the latest problem reported for lithium-ion batteries, and the increasing number of incidents associated with the technology is starting to spark consumer doubt. While this is the first fire sustained by Tesla, GM’s Chevolret Volt and Mitsubishi’s i-MiEV have also faced lithium-ion battery fires, and so, too, did Boeing (NYSE:BA) with its 787 Dreamliner jets.

It’ll be interesting to see how investors and consumers respond to the new fire suffered by the electric car giant, which has seen its stock soar almost sixfold this year. Tesla has been riding the wave of of good news since earlier this summer, when it posted its first profitable quarter in 10 years, but now it hopes that a fire won’t be the thing to send its success up in flames.

To be fair to Tesla, it is important to note that the fire on Tuesday was the first it has sustained after a combined 113 million miles of driving and tests, Reuters says. The Model S received off-the-charts safety ratings from both Consumer Reports and The National Highway Safety and Traffic Administration this summer, and the vehicle’s warning system worked as designed during the Tuesday fire, alerting its occupant of the danger in plenty of time for him to pull over and exit.

According to Reuters, the fire never entered the vehicle’s interior cabin, and the only reason its cooling system didn’t function to prevent the fire was due to the debris on the road. Tesla released its own statement Wednesday to explain the issues: “Yesterday, a Model S collided with a large metallic object in the middle of the road, causing significant damage to the vehicle. The car’s alert system signaled a problem and instructed the driver to pull over safely, which he did.”

source: http://www.flickr.com/photos/supertsai/

Tesla continued in the statement: “No one was injured, and the sole occupant had sufficient time to exit the vehicle safely and call the authorities. Subsequently, a fire caused by the substantial damage sustained during the collision was contained to the front of the vehicle thanks to the design and construction of the vehicle and battery pack. All indications are that the fire never entered the interior cabin of the car. It was extinguished on-site by the fire department.”

However, consumer concern still ran rampant, and the company’s stock plunge followed suit. Tesla CEO Elon Musk will now do all he can to maintain consumer confidence and move forward. Luckily the likable CEO is known for his way with words, especially on Twitter, but as the auto industry continues its shift toward lithium-ion batteries, it’ll have to continue to ensure their safety.

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