Tesla Car Fire

In class thus far we have been learning about how companies can make strategic moves to gain market share, and if these moves are effective or not. We have also learned how companies can price products in order to deter entry in to a specific market. In the case of the Tesla car fire, however, the actual product itself could be influencing the success of the company rather than management decisions or pricing strategies.

In an article from Bloomberg titled “Tesla to Avoid U.S. Probe of Model S Post Crash Fire”, Angela Greiling Keane and Alan Ohnsman discuss the impact of the Tesla car fire that occurred post car crash. Although the nature of the crash seems to be the key factor in the vehicle lighting on fire, the event has nevertheless created a speed bump in Tesla’s exponential growth. The fire caused a 10% drop in the company’s shares over two days, and increased uncertainty as to whether the technology in the car is safe or not. Increased uncertainty is bad news for Tesla. Given that the company’s outstanding growth is mostly due to speculation about the implications of its green technology use in cars rather than actual profits from the company, uncertainty could be potentially detrimental to Tesla’s future success.

The uncertainty of the safety of Tesla cars could potentially crack the door open for competitors. If a car company were to arise that displayed safer technology than Tesla, they could potentially be able to become successful in the electric car market. However, the market for electric cars has high fixed costs and thus would deter entry from occurring. Also, the current “competitors” of Tesla that already exist are not threatening Tesla’s success by any means. The Tesla fire may have caused a short term bout of uncertainty that resulted in the fall of its stock prices, however due to the lack of good competitors that already exist in the market as well as the high fixed costs that deter new competitors from entering the market, this will most likely not result in substantial losses for Tesla.

2 thoughts on “Tesla Car Fire

  1. With any kind of speculative investment in stocks the feel of the market for a stock can go a long way in terms of the price. In my managerial business class that I am taking now often corporate companies would not even consider investing in a company merger that might increase companies revenue by 35% over 10 years if in the first 2 year the companies stock would take a hit. With incentive models in place that tie manager’s bonuses with stock prices managers may care more about what the stock price is in the now and less about actual performance of the company in the next 5-10years. With large fixed costs as technology improves these costs may decline allowing for competitors to enter the market after the hard work has been done by Tesla. Patents to the rescue?

  2. Paul, I’m amazed at how firms can be so myopic. However, that appears to be a story of incentive for the firm versus incentive for managers and firm employees. Getting back to Tesla, I agree that it seems plausible that a new entrant with safer technology could seriously undermine Tesla’s position in the market.

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