Bloomberg News

Tesla’s Third Model S Fire Brings Call for U.S. Safety Probe (1)

November 07, 2013

Tesla Model S Sedan Fire

A firefighter works at the scene of an accident involving a Tesla Model S sedan near Murfreesboro, Tennessee on Nov. 6, 2013. The driver, identified as Juris Shibayama, struck a tow hitch that was in the middle of a lane, which damaged the car’s undercarriage and caused the fire, said Dalya Qualls, a Tennessee Highway Patrol spokeswoman. Source: Tennessee Highway Patrol via Bloomberg

Tesla Motors Inc. (TSLA:US)’s third fire in five weeks involving a Model S suggests U.S. regulators need to examine the luxury electric car, a safety advocate said after a Tennessee accident.

Shares of the Palo Alto, California-based carmaker led by Elon Musk slid 7.5 percent to $139.77 at the close yesterday in New York after reports of the newest fire. That decline follows a 15 percent drop Nov. 6 after the carmaker’s third-quarter results and fourth-quarter outlook disappointed investors. It was the biggest two-day plunge since Dec. 27, 2010.

The National Highway Traffic Safety Administration “absolutely has to investigate” the Nov. 6 Tennessee incident, Clarence Ditlow, executive director of the Center for Auto Safety, based in Washington, said in a phone interview.

A Model S driver struck a tow hitch in the middle of a lane on Interstate 24 near Murfreesboro, Tennessee, damaging the car’s undercarriage and causing the fire, Dalya Qualls, a Tennessee Highway Patrol spokeswoman, said in an e-mail. The driver pulled the car over and was uninjured, Qualls said.

NHTSA declined to investigate a Model S fire in Washington state in October, the first such reported blaze, in which metal debris was involved.

“It appears there’s inadequate shielding on the bottom of these vehicles,” Ditlow said. “Road debris is a known hazard to the undercarriage of vehicles.”

The U.S. agency “will contact the local authorities who are looking into the incident to determine if there are vehicle safety implications that merit agency action,” Karen Aldana, a spokeswoman for NHTSA, said in an e-mail.

Tesla Team

Liz Jarvis-Shean, a Tesla spokeswoman, declined to comment on Ditlow’s remarks and on whether the company needed to strengthen the aluminum casing that houses the 1,000-pound (454-kilogram) lithium-ion battery that powers the Model S.

“We have been in contact with the driver, who was not injured and believes the car saved his life,” Jarvis-Shean said in an earlier e-mail. “Our team is on its way to Tennessee to learn more about what happened in the accident. We will provide more information when we’re able to do so.”

Tesla, the best-performing automotive stock this year, has been under scrutiny as Chief Executive Officer Musk works to create the world’s biggest and most profitable seller of electric cars. Even with this week’s declines, Tesla shares have surged more than fourfold this year after reporting its first quarterly profits.

‘Rocket Science’

The Washington state Model S fire took place Oct. 1, and another occurred in Mexico in mid-October. NHTSA said Oct. 24 it found no evidence the first fire resulted from defects or violations of U.S. safety standards. The agency has said it doesn’t investigate vehicle accidents outside the U.S.

A possible fix for the Model S, priced from $70,000 to more than $100,000, “is not rocket science,” Ditlow said. “Probably the simplest task Tesla has is putting a strong steel shield on the bottom of the car.”

The Model S has “a six-millimeter thick armor plate on the bottom,” Musk told Bloomberg Television last month.

A U.S. investigation or recall of the Model S “could raise near-term concerns to a higher level in terms of cost, image and production disruption to Tesla,” Adam Jonas, an analyst for Morgan Stanley, said in a research report yesterday.

“We would be very surprised if Tesla has not already launched its own investigation into the cause of battery compartment intrusion to explore causes and potential remedies,” said Jonas, who rates the stock overweight. A voluntary recall “would be consistent with Tesla’s extraordinary efforts to build brand value and trust.”

Battery Issues

Lithium-ion batteries have come into widespread use in laptop computers, consumer electronics, rechargeable cars and hybrids, and even aircraft, owing to their lighter weight and high energy density.

Tesla isn’t the first company to experience battery pack-related fires. The U.S. Federal Aviation Administration ordered the grounding of Boeing Co. (BA:US)’s 787 Dreamliner aircraft this year after meltdowns of lithium-ion batteries.

NHTSA formally investigated fires in two other battery-powered vehicles, General Motors Co. (GM:US)’s Chevrolet Volt and Fisker Automotive Inc.’s Karma.

GM conducted a voluntary program to strengthen the Volt’s battery pack. Fisker, which stopped making plug-in Karmas more than a year ago, issued recalls to fix flawed lithium-ion packs at risk of shutting down and for a separate wiring issue linked to a fire.

Tesla’s Image

Multiple reports of battery fires may harm Tesla’s image, said Karl Brauer, an industry analyst for Kelley Blue Book in Irvine, California.

“At some point the cause of the fire, the safety of the drivers and even the attitude of the owners -- all three apparently want another car -- stops mattering because you’re left with recurring headlines featuring the words ‘Tesla’ and ‘fire,’” Brauer said.

“For a company with a stock price based as much or more on image than financials, those recurring headlines are highly damaging,” he said.

Musk’s net worth has more than tripled this year to $7.4 billion, according to the Bloomberg Billionaires Index. Share declines yesterday for both Tesla and SolarCity Corp., another Musk-affiliated company, cut his wealth by $576.8 million, according to data compiled by Bloomberg.

Musk is Tesla’s largest shareholder (TSLA:US). Daimler AG and Toyota Motor Corp. (7203) are also investors in the company.

The Tennessee Model S fire was first reported on the ValueWalk website, which cited photos of the car fire posted on the Tesla Motors Club forum website.

To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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