Fires, faulty drive units, financial losses and stock price deflation marked Tesla Motors news in a week that seemed as bad as the last couple of years were good.
Fortunately for CEO Elon Musk and his support staff he’s mastered the art of celebri-preneur showmanship that he’s built enough standing with the media to endure a really bad week. The multi-billionaire who’s dazzled with innovation at Paypal, SpaceX and SolarCity will be permitted his stumbles because of his track record and his self-assurance. Henrik Fisker, whose taxpayer-backed luxury electric auto company didn’t get nearly the same favor, must be jealous.
But even Fisker Automotive didn’t suffer three vehicle fires in the space of six weeks, like Tesla’s Model S just did. The latest occurred Wednesday afternoon near Nashville. The Tennessee Highway Patrol told Associated Press that the car’s driver ran over a tow hitch on Interstate 24. The incident occurred the day after Tesla reported its 3rd quarter earnings, in which it reported a net loss of $38.5 million, which created a downward pressure on its overvalued share price. The Tennessee fire accelerated the drop.
As has now become familiar, Tesla’s official response to the fire was to emphasize that no one was injured, and gave the impression that if you are going to be in an auto accident you want to do it in a Model S because of its great safety features. But watchdogs are sounding more skeptical now.
“The problem here isn’t that the cars lack effective safety technology, as all three Tesla accidents and fires have resulted in no injuries to the drivers. The problem is that we have three fires in six weeks,” said Karl Brauer, senior analyst at Kelley Blue Book, as reported by AP. “At some point the cause of the fire, the safety of the drivers and even the attitude of the owners (all three apparently want another car) stops mattering because you’re left with recurring headlines featuring the words ‘Tesla’ and ‘fire.’ For a company with a stock price based as much or more on image than financials, those recurring headlines are highly damaging.”
Following the incidents Tesla also strove to make clear that the fires were not “spontaneous.” The first fire early last month in the Seattle area was also reportedly the result of driving over debris in the road. Last week a Model S caught fire in Mexico after crashing.
But whether or not the fires were spontaneous, as though observers were trying to point out some kind of defect, is not the point. Defects and spontaneity are irrelevant in light of the fact that thermal runaway is in the inherent nature of the lithium ion batteries that power these vehicles. All vehicles undergo stress and run over objects from time to time, but comparatively few burst into flames as a result.
Tesla, which benefited from a $465 million government stimulus loan that was in part used to design the Model S, carries up to three times the amount of stored electrical energy of the Chevy Volt and five times that of the Nissan Leaf, according to Yahoo!’s automotive site Motoramic.
“Even though it has fewer electric cars on the road than its competitors,” wrote reporter Justin Hyde, “none have reported similar fires after crashes. And while liquid-fueled vehicles suffer about 170,000 such fires every year, federal data show they take place in only 0.1 percent of all crashes.”
Unlike most EVs, whose batteries are encased in steel and are stored in the rear, the Model S battery extends across the undercarriage so it can be more easily swapped for recharging. However, common sense says that makes the highly sensitive lithium ion technology more vulnerable to strikes and punctures. A good question for Tesla might be how many crashes the Model S has had without a fire.
“To have one instance of fire from road debris is a fluke,” said Clarence Ditlow, director of the Washington-based Center for Auto Safety, to Motoramic. “To have two road debris fires in a vehicle population that small is highly unusual.”
The second-guessing, after the stock this year rose by more than 400 percent, is spreading with others in the media, who are starting to look beyond the superficial Wall Street techno-stock promotional puffery. The Los Angeles Times noted that automotive marketing site Edmunds.com reported that its Model S was “making an ominous noise under acceleration and deceleration” and was “getting worse.” The newspaper said the same complaint was showing up on Tesla’s online owner’s forum. One owner said it took two replacements of the Model S’s drive unit for the problem to be fixed. According to Edmunds vehicle-testing manager Tesla replaced their drive unit also – quickly – which he seemed to think indicated they’d seen the problem before and were prepared for it.
Shares dropped by 15 percent on Wednesday after the earnings report and then another 9 percent Thursday before finishing the day at $139.77. This morning they hit $135.50. Tesla’s 52-week high is $194.50, attained in recent months, after starting the year below $35.
In the big picture, even without the fires, you have to wonder how stable the business model really is. Nearly this entire year Tesla and the media boasted how it paid back its $465 million Department of Energy loan nine years early. After high-profile Recovery Act failures such as Solyndra, Abound Solar, A123 Systems, Fisker, and Vehicle Production Group, DOE was desperate to promote a winner. New Energy Secretary Ernest Moniz seized upon the development to announce that he would find a way to revive the Advanced Technology Vehicles Manufacturing loan program that many electric vehicle entrepreneurs rejected because of publicity surrounding previous loans.
In May Tesla announced its first-ever quarterly profit, which was only accomplished thanks to California and federal environmental credits that totaled $85 million – 15 percent of revenues, according to a Bloomberg report. In the second quarter Tesla reported a profit of $26 million, and with all the “good news” its stock price correspondingly rose. But once again Musk it was thanks to government’s gaming of the market. As Mother Jones reported, second quarter results included $51 million in zero-emission credits revenue, “without which it would not have been able to report a profit.” In the just-released third-quarter earnings, Tesla reported just $10 million in emission credits revenue, so that golden goose is clearly running out of eggs. And Tesla is back to reporting losses under Generally Accepted Accounting Principles, with a $38.5 million shortfall.
Tesla’s California-centric dependency doesn’t appear to hold much promise either. Besides the government mandates and subsidies, a study by Edmunds.com found that Model S sales earned “double-digit market share in several wealthy West Coast areas,” predominantly in the Golden State.
“The Tesla Model S is the most registered vehicle in 2013 in 8 of the 25 most expensive zip codes in the US,” reported analyst Jessica Caldwell.
So just as was the case with the Chevy Volt, taxpayers have subsidized with billions of dollars the production of high-cost toys for the wealthiest one-percent in the country. And with Tesla – which is also spending millions of dollars to build out a “Supercharger” network so that customers can drive their EVs long distances – the net “profits” are only there because it depends on a rich clientele combined with tax credits for both consumers and the company, as well as other perks such as usage of high-occupancy highway lanes. Not everything that sprouts in California is adopted by the rest of the country.
The business model looks so shaky that another fire or two, regardless of cause, could really do some damage.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.