One, Two, and Now Three Fires: Is Tesla Motors Doomed?

One, Two, and Now Three Fires: Is Tesla Motors Doomed?

No, Tesla Motors is not doomed. But that's the sense investors got when yet another several billion dollars of Tesla's market capitalization was slashed on Thursday after a third Model S caught on fire. With more than 15,000 vehicles on the road and over 130 million miles driven, vehicle fires are inevitable. But if the market continues to react so negatively to every fire, the market could drive the stock to irrational lows. Is the market overreacting?

Details of the latest fire
The third Model S fire occurred in Smyrna, Tenn., on Wednesday.

Tesla spokeswoman Elizabeth Jarvis-Shean confirmed the fire.

We have been in contact with the driver, who was not injured and believes the car saved his life. 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 says that the fire was not spontaneous and was the result of an accident.

The first two fires occurred in October: one in Seattle and another in Mexico.

It's all about perspective
Three fires for the Tesla's 2013 Model S definitely merits concern. It's even sparked renewed interest from the National Highway Traffic Safety Administration who says they will contact local authorities to look into the incident to determine if agency action is necessary. But with only three fires and no official announcement that there is any product defect, have investors overreacted?

Probably -- let's recruit some perspective. There are around 152,000 vehicle fires per year (17 per hour) according to the National Fire Protection Association. These fires have killed an average of four people every week.

Even more, why don't we hear what each of these three drivers had to say?

  • Driver of the first Model S vehicle says that he is still a big fan of the Model S and looks forward to his replacement vehicle.

  • Driver of the second Model S appreciates the safety of the car and has asked for Tesla to expedite the delivery of his next Model S.

  • Driver of the third Model S has asked for a replacement Model S and believes the car saved his life.

So, some perspective brings all the drama surrounding Tesla's fires down to earth. On the other hand, the statistics are looking less favorable for Tesla. When the first fire occurred, Tesla had one Model S fire in 100 million miles. That compares to one vehicle fire for every 20 million miles driven for conventional gasoline cars. Now, however, Tesla's statistic has worsened to about one fire for every 50 million miles driven.

If this statistic continues worsen or there is an official announcement from Tesla or from a safety agency, then investors have reason to reevaluate the effect that a potential product defect may have on the company. For now, however, there isn't yet any reason for Tesla investors to be concerned.

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Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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