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Fear of Fire the Last Reason to Sell Tesla

NEW YORK (TheStreet) -- I want to focus on the seemingly irrational concern over Tesla Motors (TSLA) car fires; first, however, I want to relate my surprise and disappointment with Elon Musk's recent cavalier approach to customer service.

By now, if you're closely following every turn of Tesla, you probably heard about George Clooney's dissatisfaction with and sale of his Tesla Roadster. You can read the interview that led to Clooney's statement at esquire.com.

I'm not sure if it was a moment of weakness, arrogance or sheer stupidity, but Muck's response to a customer complaint was a textbook example of how not to handle client criticism: "In other news, George Clooney reports that his iPhone 1 had a bug back in '07."

Setting aside the humor of the tweet, what is the message Musk is sending to current and potentially future customers? Tesla cars may break down or have issues leaving drivers stranded on the side of the road and management will make jokes about it?

What kind of treatment can the average car buyer expect if a high-profile celebrity is blown off as little more than an annoyance to ridicule?

Unless Musk is ready to report that everything is perfect with the Model S, maybe it's caveat emptor for buyers, and don't complain about any problems because you may end up as the butt of a joke. Who wouldn't be upset if they dropped $100,000 for a vehicle and it left them on the side of the road multiple times?

The correct response, if any by Musk, is to apologize for the defects and to try to make it right. If Tesla wants to have more than a snowball's chance against Ford (F) General Motors (GM) Toyota (TM) and dozens of others fighting for market share, it needs to develop and maintain world-class customer service, not practice for A Night at the Improv.

Any CEO who doesn't take product complaints seriously does so at his own and shareholders' peril.

Speaking of peril, if you've read any of my recent warnings about Tesla's incredibly high valuation, you know I've left zero ambiguity over my thoughts on what direction the share price is headed. The short version is that I believe it's time to take some profits off the table.

But I don't think the reason is because of cars catching on fire. It seems the mere mention of Tesla and fire in the same sentence can drop the share price by $2 or more within minutes. I can find many reasons why the stock should be sold off including lack of revenue, lack of profits or lack of long-term government subsidies to keep the sticker price competitive with gas vehicles, but lack of safety isn't one.

All cars catch on fire and some quite easily. You may view an endless selection of vehicle fire videos on YouTube.

For those old enough to remember, the Ford Pinto was notorious for catching on fire with little more than being hit by a nine iron to the rear. In the Pinto's case, it wasn't even the fires that caught the public's attention; the real shocker was a leaked internal memo describing the expected cost savings if Ford didn't fix the problem.

With Tesla, the media has made much to do about nothing as it so often effectively does, but investors will be well advised not to allow irrelevant media noise influence their capital allocation.

According to Musk, the odds of a Telsa vehicle catching fire are much lower than a gas-powered vehicle. Also, no one has died as a result of a Tesla fire, something other auto manufactures can't claim. Even if the Model S caught fire at the same rate as other cars, it shouldn't affect your investment decisions. As long as the overall safety difference is statistically insignificant, it's a non-issue.

There are many reasons to take some profits off the table, but fear of fires after only three isn't one of them.

At the time of publication, the author does not hold a position in any stock mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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