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Saturday
Nov092013

Tesla Fires Raise Doubts About Seemingly Untouchable Company

Justin Sullivan/Getty Images(NEW YORK) -- The headline-grabbing electric car company Tesla suffered another blow to its image this week when one of its Model S cars caught fire, the third in six weeks to do so.

In all cases, drivers walked away from the battery-powered cars uninjured. But for a company that touts the best safety rating in the auto industry and accolades like "Car of the Year" and "Best Car Ever Tested," the report of cars bursting into flames are troubling.

Tesla's stocks tumbled 26 percent in the wake of that news, and the company's third-quarter earnings report, released on Tuesday, which showed lower than projected sales.

The fires and prospect of danger associated with the cars -- real or perceived -- may have changed the company's momentum, according to car industry experts.

"I think there is definitely a negative impact when you have dramatic pictures of a car on fire. Just one of those can cause a certain amount of reassessment of a brand, when you have three events in a six-week period it becomes a recurring image in peoples' brains," said Kyle Brauer, a senior analyst at Kelley Blue Book.

Brauer and Justin Berkowitz, an editor at Car and Driver magazine, both pointed out that conventional gas-powered cars also catch on fire with an astounding frequency -- about 17 a day. But Tesla is under scrutiny because of its newness, its somewhat mysterious new battery technology and all of the buzz that has surrounded the company and its famed founder Elon Musk, they say.

"The company is under the microscope right now," said Brauer. "It's been a darling of Wall Street, it's got this charismatic leader, and that makes everyone look at it much more closely. It makes it much more of a fixation."

"What it looks like right now is they have a PR problem," Berkowtiz said. "And they might continue to have a PR problem."

Both analysts pointed out that Tesla has a backlog of orders from customers willing to pay more than $80,000 for a Model S. Still, the company's stock took a significant hit this week.

"We saw a big big big dip yesterday," Berkowitz said. "It's overvalued, the company's market cap is overvalued. It's not a $12 billion company. That stock needed to correct at some point, and it still needs to correct more. So this might be one way it adjusts."

All three fires in the past six weeks have started when an object pierced the battery pack in the car, Brauer explained. The result is similar to when a gas tank is punctured.

"There's this image that it's cleaner because it doesn't involve an engine or gasoline, that it's this clean warm fuzzy insulated world that's so unlike a gasoline-powered car. And now we're learning it's not that different. It's still a large amount of energy stored in a vehicle to move it around, and if you pierce it, it can start a fire pretty easily, just like gasoline," Brauer said.

"In other words, they catch on fire too," he said.

When Teslas do catch on fire, responding firefighting crews have to treat the cars differently than their gas-powered counterparts. Because the fires often involve the batteries, which contain chemicals, water is ineffective at treating the chemical fires. Crews must respond with their own chemicals, Brauer explained.

But Berkowitz warns that the headlines about the fires don't necessarily mean the company has an actual safety problem on its hands. As he points out, statistics show about 17 cars an hour catch fire in America, almost all of them conventional, gas-powered cars.

"If a Tesla catches on fire, it's on TV, I have to write about it. It resonates with the public, even though it's not a significant number," he said.

"If you think about a regular car you're driving around with gasoline, conventional cars catch fire all the time and can have fuel leaks, and we're OK with that, we're comfortable with that," Berkowitz said. "Teslas are expensive. They're bought by rich people, and there's kind of an uncomfortability or people don't understand the science behind it or the risks."

Tesla touts its safety ratings in which it has scored high during crash tests that all cars undergo. In response to Thursday's fire, the company defended the car's safety record.

"We have been in contact with the driver, who was not injured and believes the car saved his life," the company said in a statement. "Our team is on its way to Tennessee to learn more about what happened in the accident."

The company also pointed out that the National Highway Transportation Safety Association cleared the car for any fault in a fire on Oct. 3 in Seattle, and found no evidence of any defect or problems with safety standards.

"After reviewing all available data, the NHTSA has not found evidence at this time that would indicate the recent battery fire involving a Tesla Model S was the result of a vehicle safety defect or noncompliance with federal safety standards," the NHTSA said at the time.

The company did not respond to requests for comment from ABC News today.

Whether the fires have any long-term impact on the rising star of the auto industry remains to be seen. According to the experts, that answer mainly depends on whether any more Model S vehicles make headlines for catching fire.

"What's worth keeping in mind is that no one's really sure yet whether we're giving attention to this because they're glamorous cars getting destroyed in shocking ways or because something is actually going on," Berkowitz said.

"Of course the other thing is how many more times this is going to happen? There's been three fires in six weeks," Brauer said. "If there's not a fire for another year, people will forget. If there's a fire next week or month, that's not good. But we'll start getting an answer to at least one question: Is it easier to start a fire in a Tesla or not?"

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