Tesla Fires Raise Doubts About Seemingly Untouchable Company

Nov. 9, 2013— -- 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 reports 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, 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.