Tesla Model S Fire Problems Result in Lawsuit by Investors

Investors are suing Tesla Motors Inc., saying that the company misrepresented the safety of the battery of its Model S electric car, resulting in a $6.5 billion loss in stock value when information surfaced about the potential risk of fires.  

The securities lawsuit was filed by Robert Rahimi in U.S. District Court for the Northern District of California on Friday, seeking class action status to include all investors who suffered losses since May 10, due to reported problems with the Tesla Model S electric car. Included as defendants in the lawsuit are Tesla CEO and founder Elon Musk and Deepak Ahuja, its chief financial officer.

This week, the National Highway Traffic Safety Administration (NHTSA) announced that it is informally investigating reports of Tesla Model S fires with the electric car. The announcement came after at least three reports of fires with Tesla Model S vehicles.

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The latest fire occurred when a Tennessee driver hit a tow hitch that damaged the undercarriage and caused the Tesla Model S to burst into flames. The driver was unharmed.

At issue is the car’s lithium ion battery, which some say can burst into flames if punctured. The battery’s location, near the underside of the vehicle, could mean that it is more exposed to puncture from road debris and auto accidents, some experts suggest.

Since word of the Tesla Model S problems with fires became public, the stock price for the manufacturer has plummeted, falling nearly 30%. The drop represents a $6.5 billion loss in the company’s stock value, according to Rahimi’s complaint. At first, Tesla officials stated that the problem was not with the battery, but later recanted those statements.

The Tesla class action lawsuit accuses the company of failing to warn investors that the Model S had potential safety problems, allowing the perception that the vehicle, which has a five-star safety rating from the NHTSA, was “the safest car in America,” which is what the Tesla website has claimed.

Photo Courtesy of jurvetson via Flickr CC

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