No sooner do I write an article about my long position in Tesla (TSLA), than it's reported that another Model S has apparently caught fire and exploded in Mexico. Just my luck, right? Surely this is going to be a PR disaster and send the stock shooting downward into oblivion. The once untouchable and safe Tesla has a major design flaw that's going to cripple sales and consequently, the company - right?
It doesn't take a doctorate student in physics to understand that when you take any piece of electronic technology - gas powered or electric, 18 wheeler or golf cart - and slam it through a concrete wall and several trees at high speeds, it shouldn't be a surprise if it catches fire. Then, after the initial fire, it shouldn't be a surprise if other flammable parts go up in flames. That's just the way of the mechanical engineering world - cars catch fire all over the world, all day, everyday. As SA user juicejack put it in the comments to the fire story:
If Ford stock went down every time a Pinto exploded, it would be worth about 22 cents.
Exaggeration, but right idea - and funny, because it's true.
As I said in my comments to Seeking Alpha's Market Current on the topic - these fires are being reported on like the car is just spontaneously bursting into flames every time someone eats a frozen yogurt in them. These cars are involved in major accidents at high speeds.
Tesla is under an intense microscope of not only being a public company, but entering into an already saturated and specialized industry with what could potentially be a revolutionary product. The bad headlines come as part of the package of all the media that is surrounding Mr. Musk and his company. All of the news - the good and bad - is amplified to the nth degree, which can probably explain why Tesla currently trades at a forward P/E of 120.
In fact, this particular incident was so terrible that - wait - the owner couldn't wait to get another Model S?
Tesla Motors released the following statement in regards to the news that was reported today:
"We were able to contact the driver quickly and are pleased that he is safe. This was a significant accident where the car was traveling at such a high speed that it smashed through a concrete wall and then hit a large tree, yet the driver walked away from the car with no permanent injury. He is appreciative of the safety and performance of the car and has asked if we can expedite delivery of his next Model S."
So, it's actually starting to look like these incidents could be testaments to the critically acclaimed safety of Tesla's vehicles, as opposed to an argument against potentially owning one or investing in the company. The driver in this last story walked away from the vehicle after what appears to be an extremely serious accident.
(click to enlarge - courtesy jalopnik.com)
Now that Tesla is selling tens of thousands of vehicles, it's simple statistical probability that some people are going to get into accidents. Some of those accidents will lead to fires. That's just how probability works.
Meanwhile, while a total of two fires are being opined and scrutinized about in the world of Tesla, companies like GM are recalling hundreds of thousands of vehicles at a time because of things like "power window and door lock modules that can overheat and catch fire" while the car is parked. Needless to say, I'd bet Tesla has the "door handle" problem figured out at this point.
In addition, is there really such a thing as bad publicity at this point for Tesla? Elon Musk is going to come out publicly again and assure drivers and investors what we both already know - that sometimes cars catch fire when they're slammed through concrete walls at 70 miles an hour. That's just physics 101 combined with a minute suggestion of common sense.
As I stated in my earlier article regarding Tesla, I'm bullish on the company for the long term. Just like any other recall, this makes for a skittish looking headline for the short term, but I believe Mr. Musk and his company has what it takes to provide exponential returns moving forward into the long term. I'm disregarding these stories and remaining steadfast in my long position with Tesla.
Best of luck to all investors.