Tesla Inc.’s stock plunged into bear market territory Thursday before bouncing slightly, after an independent highway-safety organization said the electric-car maker’s flagship Model S failed to qualify for any top safety award.

The latest shortcoming, which comes after changes were made following an initial failure earlier in the year, appears to discredit the company’s claim on its website that its vehicles are “the safest cars ever.”

The stock’s TSLA, +4.42% selloff knocked Tesla from its perch as No. 1 U.S. car maker by market cap, a distinction the Silicon Valley company maintained for some three months. Tesla had a market value of $50.74 billion at Thursday’s close, compared with $52.67 billion for General Motors Co. GM, -1.31% , according to FactSet data. Tesla’s stock has lost about $7.18 billion in market cap the past two sessions.

The shares tumbled as much as 6.4% to a six-week low of $606.30 in afternoon trade before bouncing slightly, after skidding 7.2% on Wednesday in the wake of downbeat deliveries data. They closed Thursday at $308.89, or 19.4% below the June 23 record close of $383.45, after briefly trading 20.1% below that mark at the intraday low.

Many on Wall Street define a bear market as a decline of at least 20% from a bull-market peak on a closing basis. Tesla’s stock would kick off a new bear market with a close at or below $306.76. It entered a correction — a decline of at least 10% and up to 20% — on Wednesday.

Don’t miss:Tesla’s stock tumble triggers a ‘correction’ but analyst sees new highs ahead.

FactSet, MarketWatch

On Thursday, the Insurance Institute of Highway Safety said the Tesla Model S fell short of winning a safety award because it only earned an “acceptable” rating in the small overlap front crash test.

“The main problem with the Model S was that the safety belt let the dummy’s torso move too far forward, allowing the dummy’s head to strike the steering wheel hard through the airbag,” the IIHS report said.

An IIHS report on Feb. 1 first detailed safety deficiencies of Model S vehicles built after October 2016. After that initial test, Tesla made changes to the safety belt in vehicles built after January.

Read:Tesla’s new Model S fails to qualify for a top safety award

“However, when IIHS tested the modified Model S, the same problem occurred, and the rating didn’t change,” the IIHS report said.

In May, the Model S regained some standing with Consumer Reports, after Tesla updated the automatic emergency-braking systems in newer models. However, the Consumer Reports scores for the newer models remained lower than earlier versions because the updated systems didn’t work at highway speeds.

Can Tesla Live Up to Its Hype?

Vehicles qualify for IIHS’s “Top Safety Pick” award if they have “good” ratings from five crashworthiness tests — small overlap front, moderate overlap front, side, roof strength and head restraints — and have front-crash prevention systems that earn superior or advanced ratings. To receive IIHS’s “Top Safety Pick+” award, vehicles must also have at least acceptable ratings on headlights.

The Model S’s headlights earn a poor rating, IIHS said, and haven’t been rated for front crash prevention.

Tesla pointed out that the Model S received the highest ratings in IIHS’s crash tests in all but one category, where it received the second-highest rating.

“While IIHS and dozens of other private industry groups around the world have methods and motivations that suit their own subjective purposes, the most objective and accurate independent testing of vehicle safety is currently done by the U.S. government, which found Model S and Model X to be the two cars with the lowest probability of injury of any cars that it has ever tested, making them the safest cars in history,” a Tesla spokesperson said in an emailed statement to MarketWatch.

Meanwhile, IIHS said three vehicles qualified for its Top Safety Pick+ award: Ford Motor Co.’s F, -0.68% Lincoln Continental, Daimler AG’s DAI, -1.98% Mercedes-Benz E-Class and Toyota Motor Corp.’s TM, -0.55% Toyota Avalon.

Other cars that failed to receive any awards were General Motors Co.’s GM, -1.31% Chevrolet Impala and the Ford Taurus.