Tomahawk, WI 10/07/2013 (BasicsMedia) – Tesla Motors Inc (NASDAQ:TSLA) prides itself inbeing one of the major players in the production of electrical vehicles. It is the largest producer of electrical vehicles in the U.S, though it is now expected to go through some competition from GM which intends to get into this market as well in the near future, possibly by 2016. TSLA’s launch of the Model S had been hailed across the industry as the first car of its kind. All the reviews appeared to indicate that this was a product guaranteed to make TSLA more profitable. But why is TSLA losing faster?
The main reason why TSLA is struggling to make money right now, and its stock is losing its value, is because of Model S. The company has seen a loss of close to $2.5 billion in the value of this stock within a period of a week. Even the company’s CEO, Elon Musk, has not been spared by this latest development. He has lost close to $600 million in the same time when the stock has taken a serious beating. Why? It all boils down to the safety, or lack thereof, of the Model S. This car went up in flames and investigations are ongoing to determine what caused the fire.
While no one got hurt by the fire which burnt Model S, TSLA has attracted a lot of attention, for the wrong reasons. Normally, when a car goes up in flames, you can reverse or stop the situation from getting worse by sprinkling some water on it. But in this case, when water was sprinkled to reduce the fire, the situation got worse. It all started when the Model S car struck a metallic pole and burst up in flames. What should have been resolved within a few minutes became a major disaster that has now caused the industry to worry on the safety of these cars.
It is worth noting that the Model S has already clocked close to 83 million miles and has never been involved in another accident which is anywhere close to this one. It has encountered close to a dozen accidents in its history, but none of these has been related to fire in any way. This is the first time that a Tesla car had gone up in flames while on the road. The fact that the company has lost a significant value of its stock has not gone unnoticed. It could be because the market is reacting to bad news regarding a product that had been marketed based on its safety.
The fact that TSLA is a market leader in the production and design as well as development of electrical vehicles, may just have influenced the strong negative reaction the stock has encountered in the last few days. I think the market is looking at this incident from this particular angle: if TSLA can’t produce a car which doesn’t go up in flames the way the Model S did, is there any hope for electrical vehicles? TSLA now has to prove that it can overcome this challenge and provide the market as well as industry with answers as to causes of the fire.