The Tesla fire and the perception problem

A shot from one of our videos of the Model S. Image courtesy of Gigaom.

Three and a half years ago, then-scrappy electric car startup Tesla went public at $17 per share, on sales of less than 1,000 cars and a deficit of $236.4 million. When the stock market sent Tesla’s shares soaring on the day of the IPO, one thing was clear to me about Tesla: branding was everything.

Now that Tesla has started making its second car at scale, it has delivered a quarter profit for the first time, and its shares have traded at a high of almost $195 per share, branding is still everything for Tesla. That’s why the viral video of one of Tesla’s Model S cars burning could be an actual problem for Tesla.

Tesla Model STesla’s Model S has been rated as the safest car out there by the National Highway Traffic Safety Administration (NHTSA). The Model S that’s shown in the video in flames hit some metal debris on a freeway and Tesla says the fire started in one of the modules in the battery pack. The pack fire, as it turns out, was also difficult to put out.

But whether or not an internal combustion car would have had a reaction on par to the Model S when it directly hit some metal debris (or ignited the fuel tank in some way), isn’t really the question. The issue is how much damage can a viral video of a Model S on fire do to Tesla’s valuable brand.

Investors reacted to the fiery inferno, and already bubbly stock, and it dropped down to $168 per share at one point, though recovered a bit in the afternoon. It’s now trading around $175 per share.

Tesla logo on the Model X

Tesla logo on the Model X

Will customers be worried about Model S cars catching on fire after collisions? And will that effect sales at all? An investigation in a couple of fires during safety testing with Chevy’s Volt back in 2011, seem to contribute to a considerable freeze in Volt sales for awhile. Fires certainly weren’t great publicity for Fisker’s electric cars back when those were on sale.

Large companies with diverse product lines can weather branding and publicity issues more easily than startups that have one product on the market. If that one product turns sour, there’s nothing else out there to prop up the brand.

But this fire issue could end up being another hurdle Tesla jumps over. Cars get in accidents, and bad things happen in accidents. But the company will likely have to work on its own PR campaign to be transparent but also soothe any worried customers. And the good news is that Tesla has always been particularly adept at PR and marketing, so expect some type of reaction, and soon.

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