Whatever Happened to Tesla?

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Tesla Motors Inc. (NASDAQ: TSLA) and its chief executive officer, Elon Musk, could not do a single thing wrong. Sales of the company’s electric cars rose so quickly beyond expectations that shares of Tesla rode up from just above $32 to nearly $195 over the course of the past year. A few engine fires caused the stock to fall. Now, no one cares at all whether Tesla’s cars got impeccable reviews from car magazines and researchers across the United States. Tesla has fallen out of favor in the news cycle process, and it will be hard to get back in.

German authorities said the Tesla flagship Model S was safe after an investigation that stemmed from three widely reported car fires. The news was overwhelmed by a lack of similar action by American federal authorities. Investors in great numbers still believe the company is on trial for the fires. The U.S. government may still start a recall. If so, car sales could drop, and the company’s shares could fall well below their current $140. Analysts who cover Tesla have said the U.S. investigation will come to nothing. There is no reason to think that is true, or not.

What the market has forgotten about Tesla is that it delivered 5,500 cars in the most recent quarter. That does not seem like much, but it was better than expected. The company also posted spectacular growth as revenue reached $431 million, up from $50 million in the same quarter a year ago. That is extraordinary for a company that sells a niche product and probably does not spend a dime on advertising. Tesla also said early sales in Europe were strong. And it has announced plans to enter the huge and promising car market in China.

Taken as a whole, news about Tesla and its cars over the past year has to have been 90% or more positive. That balance has been wiped out by what a careful observation would show is the most modest trouble with its cars. Convincing the news media, and probably investors, that the company is once again worthy of positive sentiment may take months. A little stumble by a red-hot company was a little stumble Tesla could not dodge.

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