Lawsuits Against Tesla Motors Inc (TSLA), Shares Down

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Shares of Tesla Motors, Inc. (TSLA) dropped 2.2% to $137.36 on Dec 6, after two class action lawsuits were declared against the automaker. Two law firms – Pomerantz Grossman Hufford Dahlstrom & Gross LLP and Brower Piven, A Professional Corporation – filed class action lawsuits on behalf of investors who purchased the stock between May 10 and Nov 6 this year.

The lawsuits accuse Tesla of making misleading statements regarding the safety of Model S, including puncture and fire risks in the car’s undercarriage and lithium ion battery pack. Moreover, the lawsuits claim that defects in the car led to the battery pack catching fire in specific situations. They also allege that the defects may affect the future sales and share price of Tesla. The lawsuits also hold Tesla accountable for failing to deliver enough cars to offset its fall in revenues from other sources.

Similar class action lawsuits were started last month against Tesla by Glancy Binkow & Goldberg LLP, Robbins Geller Rudman & Dowd LLP and Morgan & Morgan. Law Offices of Howard G. Smith is also undertaking investigations related to the matter.

The lawsuits are the result of recent fire incidents in three Model S cars. In early October, the first Model S electric vehicle caught fire near Seattle, U.S. This mishap was soon followed by a fire in another Model S car in Merida, Mexico. The third Model S vehicle reportedly caught fire on Nov 7, 2013 near Smyrna, Tenn., after the vehicle hit road debris. The collision led to fire in the front portion of the vehicle.

The National Highway Traffic Safety Administration (NHTSA) has also started an investigation to uncover any safety defect in Model S. Last week, the auto regulator asked for various relevant details from Tesla in relation to the investigation, including consumer grievances and property damage claims.

The automaker has also been asked to submit details regarding any design alteration and engineering drawings of Model S to the U.S. auto regulator. The NHTSA also demanded details of the after-effect of damage in the battery pack of Model S and the method adopted by Tesla to solve those problems.

Recently, 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 further measures for safety under the German Product Safety Act.

Kraftfahrt-Bundesamt plays a similar role in Germany like the NHTSA in the U.S. It has the power to recall any vehicles in case of any detected defect.

Tesla designs and manufactures electric vehicles and electric vehicle powertrain components for partners including Toyota Motor Corp. (TM). The company currently has a Zacks Rank #3 (Hold).

Better-ranked automobile stocks include Honda Motor Co., Ltd. (HMC) and Ford Motor Co. (F). Both carry a Zacks Rank #2 (Buy).

FORD MOTOR CO (F): Free Stock Analysis Report

HONDA MOTOR (HMC): Free Stock Analysis Report

TESLA MOTORS (TSLA): Free Stock Analysis Report

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