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Tesla Faces Safety Lawsuit

Zacks Equity Research

A class action lawsuit has been filed against Tesla Motors, Inc. (TSLA) following the recent fire incidents in Model S cars. Law firm Morgan & Morgan filed the suit on behalf of investors who purchased the stock between May 10 and Nov 6 this year.

The lawsuit accused Tesla of making misleading statements regarding the safety of Model S. Additionally, the statements did not reveal the puncture and fire risks in the car’s undercarriage and lithium ion battery pack. Moreover, it alleges that defects in the car have led to fire in the battery pack in specific situations. The lawsuit also holds Tesla liable for failing to deliver enough cars to offset the fall in revenue from other sources and alleviate analyst apprehension.

The lawsuit is referring to the recent fire incidents in three Model S cars. In early October, the first Model S electric vehicle caught fire near Seattle, U.S. According to Tesla, the incident took place after the vehicle collided with a “large metallic object”, which damaged the front end of the car. This mishap was soon followed by a fire in another Model S car in Merida, Mexico. The vehicle had caught fire after crashing a wall and hitting a tree.

The third Model S vehicle was reported to have caught fire on Nov 7, 2013. The incident occurred near Smyrna, Tenn., after the vehicle hit road debris. The collision led to fire in the front portion of the vehicle.

Incidentally, Tesla’s Model S has won the top vehicle safety rating from the National Highway Traffic Safety Administration (:NHTSA). The car obtained a five-star rating overall and also for each of its subcategories. This was a coveted award for Tesla as only 1% of cars tested receive the 5-star rating from NHTSA. This rating means that Tesla’s Model S sedan offers exceptional safety to the passengers as it has the lowest possibility of injury to passengers among all major cars sold in the U.S. The safety score of this sedan exceeded the score of most sports utility vehicles and minivans.

Meanwhile, in a positive development, Tesla sold 6,554 cars in California through the end of September, according to a report by the California New Car Dealers Association. The electric carmaker captured 11% market share in the luxury and sports car segment. California is the largest market for Tesla’s Model S cars.

However, Tesla’s sales in California were surpassed by Toyota Motor Corporation’s (TM) Prius, Daimler AG’s (DDAIF) Mercedes E-Class and Bayerische Motoren Werke AG’s BMW 5-Series. Prius was the top-selling car with 54,000 units sold. However, Tesla beat Toyota’s Lexus GS and Volkswagen AG’s (VLKAY) Audi A6.

Tesla currently retains a Zacks Rank #3 (Hold).

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