Share Price of Tesla Motors, Inc. (TSLA) increased 16.5% to $144.70 on Dec 3, 2013, after the German Federal Motor Transport Authority or Kraftfahrt-Bundesamt (KBA) revealed that it did not find any manufacturing defect in Tesla’s Model S. The authority’s statement came after it examined and reviewed the vehicle following the recent fires. The German authority issued a letter stating that Tesla does not need to take any action under the German Product Safety Act.
Tesla had provided the authority with technical data. This was done after three Model S vehicles caught fire in five weeks span. In early October, a Model S electric vehicle caught fire near Seattle, U.S., after the vehicle collided with a “large metallic object” which damaged the front end of the car. This incident was soon followed by another Model S vehicle catching fire in Merida, Mexico. The fire was ignited after the vehicle crashed through a concrete wall and hit a tree.
The third fire incident was reported on Nov 7. The incident occurred near Smyrna, TN, after the vehicle hit road debris. The collision led to fire in the front portion of the vehicle.
Kraftfahrt-Bundesamt plays a similar role in Germany like the U.S. National Highway Traffic Safety Administration (NHTSA) in the U.S. It has the power to ask for recalls in case of any defect detected in a vehicle.
In November, Tesla’s CEO Elon Musk had announced certain measures that were being implemented by the automaker in the light of the Model S fires and the consequential negative media coverage. The company provided a wireless update to increase the ground clearance of Model S during high-speed driving.
Additionally, Tesla expanded the warranty coverage to include any fire damage, even if it is the driver’s mistake. The company also requested the NHTSA to investigate the recent Model S fire incidents. Meanwhile, the NHTSA announced that it will start investigating the Model S fires.
Recently, Musk said in an interview that he expects Model S to be cleared by the NHTSA in the ongoing fire-related investigation. He believes that the car is safe and hence does not expect the investigation to result in a recall. Tesla’s Model S is a premium sedan which is priced at about $70,000 to $100,000.
Tesla designs and manufactures electric vehicles and electric vehicle power train components for partners including Toyota Motor Corp. (TM). The company currently retains a Zacks Rank #3 (Hold).
Other major automobile stocks worth considering are Daimler AG (DDAIF), and Ford Motor Co. (F). Both carry a Zacks Rank #2 (Buy).
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