What If Tesla's Engine Fires Are Still a Danger?

Cars and Drivers

Published: February 20, 2014 6:27 am

Tesla Motors Inc. (NASDAQ: TSLA) announced extraordinary fourth-quarter earnings, and its stock jumped as much as 11% to a record high. Not mentioned in the earnings release is the ongoing threat that the National Highway Traffic Safety Administration (NHTSA) could decide that the Tesla Model S battery is a threat to passengers because of fire risk. That risk is the only one that could cause Tesla’s shares to crash.

Tesla’s shares rose to $212 just after its earnings release. This pushed its market capitalization to $26 billion, about half of that of General Motors Co. (NYSE: GM). Tesla may sell 35,000 cars worldwide next year, but GM will sell just short of 10 million.

Tesla’s revenue did surge. It reached $615 million, up from $306 million in the fourth quarter a year ago. The car company still lost money in the quarter — a net loss of $16 million. Commenting on the improvement, CEO Elon Musk wrote in a shareholder letter:

For the year, Model S was the top selling vehicle in North America among comparably priced cars. Nonetheless, we believe there is room to improve in 2014 as we complete the Supercharger network and enable vehicle service almost anywhere in North America.

The potential in Europe and Asia is even more significant. Towards the end of the year, we expect sales in those regions combined to be almost twice that of North America.

Musk did not say what those “comparably priced cars” were.

The NHTSA can still decide that the Tesla Model S battery is a major fire hazard. If so, the government agency may well insist that Tesla recall all or most of the cars it has delivered since the company began to ship them to customers. No one knows what a recall would cost Tesla. However, the damage to its reputation, and the harm it might do to sales, is incalculably bad. Tesla has won several important awards for the quality of the Model S and its safety. The effects of those would be wiped out.

The NHTSA has been looking at Tesla batteries for several months now, so a decision about a recall cannot be far off. Tesla may face the first major crisis in its history.

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