Tesla Motors, Inc.’s (TSLA) CEO Elon Musk cleared the rumors about Model S vehicles being recalled by stating that the company has no such plans. The rumors were sparked after the company had to deal with three incidents of its Model S electric car catching fire in five weeks.
The CEO said that there will “definitely” be no recalls and even commented “If fire risk is your concern, you would have a great deal of difficulty being in any better car than the Model S." He said that Tesla will certainly undertake a recall if there is any safety related issue in the future.
Musk stated that the U.S. road registers one fire for every 1,300 gas-powered cars. The occurrence is much less for Model S, with only one in every 8,000 vehicles catching fire.
While the rumors of a recall led to a 4.8% fall in Tesla’s shares to $137.80 on Nov 12, share price started rising in the after market trading following the CEO’s statement.
In early October, the first Model S electric vehicle caught fire near Seattle, U.S. Tesla said that the incident took place after the vehicle collided with a “large metallic object,” which damaged the front end of the car. It was soon followed by a fire in another Model S in Merida, Mexico. The fire was ignited after the vehicle crashed through a concrete wall and hit a tree.
The third Model S vehicle was reported to have caught fire on Nov 7, 2013. The incident occurred near Smyrna, TN, after the vehicle hit road debris. The collision led to fire in the front portion of the vehicle.
As a result of this fire, shares of Tesla had dropped 7.5% to $139.77 on Nov 7, reflecting investors’ concerns over such repeated incidents that are denting the brand image. The CEO’s comments are meant to defend Tesla’s brand value and the safety assured by Model S vehicle. Tesla’s Model S has won the top vehicle safety rating from the NHTSA. The car obtained a five-star rating overall and also for each of its subcategories.
Recently, Panasonic also came to support Tesla. The company, which supplies Model S’s battery cell, said that both Tesla and Panasonic maintain high safety standards. Panasonic manufactures the battery compartment that caused the latest fire.
The National Highway Traffic Safety Administration (NHTSA) is in contact with Tennessee authorities and Tesla to investigate any possible safety issues related to the fire. Tesla might be forced to recall Model S if recommended by the government.
Tesla currently retains a Zacks Rank #3 (Hold). Other major automobile stocks worth considering are Fox Factory Holding Corp. (FOXF), General Motors Company (GM) and Ford Motor Co. (F). While Ford is a Zacks Rank #1 (Strong Buy) stock, the other two carry a Zacks Rank #2 (Buy).
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